Preamble

The House met at Ten o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Orders of the Day — ROAD TRANSPORT LIGHTING BILL

Considered in Committee.

[Sir ERIC FLETCHER in the Chair]

10.4 a.m.

Mr. David Webster: On a point of order, Sir Eric. Would you be good enough to indicate which Amendments you have selected and also whether you have selected the new Clause dealing with regulations?

The Chairman: I have selected Amendment No. 1 and Amendment No. 2 which is consequential upon it. The new Clause is out of order.

Mr. Webster: While, of course, I accept your Ruling, Sir Eric, I understand there is a feeling that the new Clause would be within the intentions of the Bill. It refers to skips for the use of demolition material which are part of a vehicle and are left lying without lighting in

the road. I had the feeling that this would be within the intention of the Bill.

The Chairman: The fact remains that the new Clause as drafted refers to objects which are not vehicles, and therefore it is outside the scope of the Bill. I am afraid, therefore, that it cannot be called. Mr. Mawby.

Mr. Ray Mawby: I apologise in advance for anything I may say as a result of the Monday morning feeling. Having to catch a night train to get here is not the best way to start the week. I beg to move,—

The Chairman: Order. I apologise. Before I call the hon. Gentleman for Totnes (Mr. Mawby) to move Amendment No. 1 we must deal with Clause 1.

Orders of the Day — Clause 1.—(APPLICATION OF PRINCIPAL ACT TO REFLECTING MATERIAL.)

Question proposed, That the Clause stand part of the Bill.

Mr. Webster: I am taken a little by surprise, Sir Eric. Perhaps I am even more Monday morningish than other hon. Members.
Many hon. Members have had correspondence from people who are in business in the manufacture of equipment. They understand that reflecting material is already in use on the highways and they suggest that the Clause is therefore unnecessary. They say that the intentions of the Bill—and we all support them—are already allowed for


because the sort of equipment involved has already been in use for some time. There is a feeling among these people that those who have pioneered such equipment are at a disadvantage. They are anxious about it and wonder whether it is necessary to have legislation of this kind.
This aspect has come to light in correspondence since Second Reading. My hon. Friend the Member for Twickenham (Mr. Gresham Cooke) brought it to my attention last week. Perhaps the Joint Parliamentary Secretary could indicate whether the equipment already being used—which is a phosphorescent type of lighting number plate, I understand—is now without the law and would be made within the law by this Bill. If that is not the case, perhaps he can tell us whether it is already perfectly legal—in which case, is there need for this legislation?
We all want to help this Bill through, but there are points about which we should be careful, and certainly one of them is whether it is necessary to legislate if equipment of this type is already perfectly adequate and allowable. There is a considerable school of thought which holds the view that the best Parliament is one that legislates as little as possible. It may not be necessary to legislate in this case.

Mr. R. Gresham Cooke: Perhaps it would be convenient to put a few general points about reflective material referred to in the Bill and perhaps the Joint Parliamentary Secretary will try to clear them up. I understand that the object of Clause 1 is to authorise reflective material to be used in a number of new ways on vehicles—for instance on number plates. If Clause 1 goes through, number plates would be one of the things which would be capable of being put in reflective form.
One or two points have been put to me about reflective material. The first is that it will definitely be more expensive than the ordinary way of making number plates and other reflectors for vehicles, and that point should be cleared up by the Parliamentary Secretary.
Secondly, the glass beads which make up the reflective material will have to be

imported from America. This will require a certain amount of dollar expenditure which is not required at the present time in the manufacture of number plates and other accessories for motor vehicles.
Those are two serious points which will arise when this Bill and the regulations made under it come into operation.
I might perhaps go on a stage further, although it may be more apt under Clause 2, and you will stop me, Sir Eric, if it is.

The Chairman: I think that it would be better for the hon. Member to reserve his observations on Clause 2 and the regulations until we come to Clause 2.

Mr. Gresham Cooke: My point is specifically in relation to number plates, and I take it that will come under the regulations which will be made under Clause 2.
I will just throw those two points into the arena for the Parliamentary Secretary to tell us about: that here is a new form of reflective material being introduced which will be more expensive and will require imports from America which will require dollars. The Parliamentary Secretary ought seriously to consider those points and tell us why it is necessary.

Mr. Kenneth Lomas: It is a pity that the hon. Member for Twickenham (Mr. Gresham Cooke) was not here on Second Reading when those two points were specifically dealt with. On the question of expense, I would refer him to Section 7 of the Road Research Laboratory Report (No. 44), published in January, for the third time:
Cost of reflectorising. Ordinary registration plates are sold by the manufacturers to garages at a cost of £2 per pair and upwards and fitted to cars by garages at a cost of around £3 10s. It is estimated after consulting with the firm making plates of the type used in the experiment that the price would be about £2 for a pair.
I said on 31st May that they might be a little more. I was exaggerating the claim of the Road Research Laboratory. Even if that were so, it would be a nominal increase and still a price which would be well worth paying in order to save life.
Whether imports would be required from America seriously concerned me. I took the matter up immediately with a number of the companies concerned and discovered that these beads could be


obtained from Germany and that there would be no dollars involved in this transaction.

Mr. Gresham Cooke: It would still require foreign exchange.

10.15 a.m.

Mr. Lomas: But it would not be in dollars. The hon. Member specifically mentioned that it would be necessary to import from America, but I am told that they could be obtained from Germany.
Those two points are adequately dealt with. The object of Clause 1 is to make it clear that a reflectorised number plate, or any kind of reflective material, is not so much a form of light but a form of warning of danger or hazard. The speech of the Parliamentary Secretary on 31st May made that perfectly clear.

Mr. Eric Ogden: On Second Reading the Parliamentary Secretary indicated that if his right hon. Friend had those powers Orders would be introduced so that this type of number plate could be brought into general permissive use before the dark nights came on. He spoke of colours other than red being used at the rear of motor vehicles, but did not indicate whether his Department had had any particular thoughts on the type of colour that would be available at one end of the car as against the other.
My hon. Friend the Member for Huddersfield, West (Mr. Lomas) suggested that the Road Lighting Working Party had suggested that black and amber were the most effective colours at the rear of a motor vehicle and black and white at the front. I have had a pair of reflective number plates on my car, one black and white and the other black and amber. Could the Parliamentary Secretary give any indication of which end of the vehicle they should be placed?

Mr. Geoffrey Wilson: I was not present on Second Reading. However, I would like to testify that these reflective number plates are extremely effective—much more effective than those in normal use. I have seen them demonstrated and there is no doubt that they are a very useful improvement. Every effort should be made to get out of the present difficulty about showing a light to the rear. The Bill does that and we all ought to welcome it.

The Joint Parliamentary Secretary to the Ministry of Transport (Mr. Stephen Swingler): I had hoped that I had explained this position on Second Reading, but let me make it absolutely clear. In this Clause we are only dealing with the definition in law. The title of the Bill begins,
A Bill to resolve doubts as to the application of the Road Transport Lighting Act, 1957 ….
and this Clause begins:
It is hereby declared for the avoidance of doubt ….
Doubt has been expressed about whether new types of material which have been developed as a form of reflector can be held in law under the 1957 Act as showing a light when they are reflecting light. The Minister has been advised that they would be so held, and hon. Gentlemen acquainted with the law will know that today the use of any such material on the rear of a vehicle, other than red, would therefore be unlawful. I am not declaring what the law is; that is a matter for the courts. However, that is the advice given to my right hon. Friend. Therefore, anybody using reflective material on the rear of a vehicle, other than red, would be committing an unlawful act.
We want to resolve the doubt on this point, and the purpose of the Clause is to differentiate between those materials designed to act as reflective materials and other materials that may be on the rear, or any other part, of the vehicle which, because of their polished surface, have the quality of reflecting. We want to get the definition clear, and we shall then pass on to discuss how and to what extent we should allow other reflective materials to be used on various parts of motor vehicles. I hope that makes the position clear.

Mr. Gresham Cooke: Will the Parliamentary Secretary confirm what his hon. Friend said about expense and the imports necessary?

Mr. Swingler: The Clause deals with the definition in law. It has nothing to do with the use of reflective materials. The purpose of the Clause is simply to clarify and get rid of doubt. We shall then pass on to consider the question of the circumstances, cost and things of that kind.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Orders of the Day — Clause 2.—(POWER TO REQUIRE OR AUTHORISE REAR LIGHTS, ETC., OF VARYING COLOURS.)

Mr. Mawby: I beg to move, in page 1, line 21, at the end to add
'and
(c) provision requiring reflective material of specified size to be fitted on each side of vehicles exceeding 18 feet in length and all articulated vehicles'
I am sorry that I jumped the gun, Sir Eric. On Second Reading, I referred to a type of vehicle to which I hoped that the Parliamentary Secretary would give careful consideration. I said:
There is no requirement under the law to show a light on the side or even to have a reflective material for use when a long vehicle is turning. This has led to accidents. I hope that the Minister, in making orders under the Bill, will take into account the long articulated vehicle and require a reflective material at some point along the side of the vehicle.
The Minister showed that he was sympathetic and said:
The hon. Member for Totnes (Mr. Mawby) mentioned the importance of distinctive markings on lorries. I should like to emphasise this. I hope that the Bill will make a contribution by enabling my right hon. Friend to make further regulations about this."—[OFFICIAL REPORT, 31st May, 1967; Vol. 747, c. 10–26.]
That shows that the Minister and I were at one on this matter, and I do not doubt that the hon. Gentleman meant exactly what he then said.
However, since then I have studied the Bill closely and I doubt whether Clause 2 gives the Minister sufficient power to require that certain vehicles should have reflectorised materials on their sides. I am not an expert, and I may be wrong about that, but that is the reason for my Amendment. I have also drafted an Amendment to the Long Title so as to make the Bill wide enough to permit the Minister to have these powers. That Amendment is in line 5, after 'vehicles' to insert:
'and to impose requirements with respect to reflective material in the case of certain vehicles'.
The Parliamentary Secretary may have been able to take advice since these Amendments appeared on the Amendment Paper and he may be able to satisfy me that the Clause enables him fully to implement his promise on Second Read-

ing, in which case, of course, I should not press the Amendment. However, he may feel that some change is required.
I am not a Parliamentary draftsman and I am not prepared to go to the stake on the wording of the Amendment, but if the Parliamentary Secretary feels that there are not sufficiently wide powers, I hope that he will accept the principle of the Amendment, which will help everyone concerned and make sure that his promise can be fully implemented by Regulations. Since putting down the Amendment a number of matters have come to my attention. For instance, because the Amendment would apply to vehicles more than 18 ft. in length, it would obviously include buses and coaches which are normally lighted and which therefore do not present the same danger as goods vehicles. Naturally, it would be wrong to attempt to tie the Minister to too much detail.
Those are my main arguments for the Amendment and I hope that the Parliamentary Secretary will appreciate that I have moved it with good intentions and that I hope to hear either that the Clause provides all the power needed, or that he will accept the principle of the Amendment.

Mr. Swingler: It may be convenient if I say straight away that the Minister has all the powers necessary to achieve this object. We are now engaged in considering draft regulations to amend Regulations 28 and 29 of the Road Vehicles (Lighting Regulations), 1964, specifically to provide for more effective side lighting of long vehicles. I can assure the Committee that in our discussions with the trade my right hon. Friend will take into consideration the possibility of using reflective materials, but it is quite clear that no additional powers are required in this respect if my right hon. Friend wishes to include reflective material among those to be used for the side marking of vehicles.

Mr. Webster: When does the hon. Gentleman expect a decision to be made and action to be taken on this matter?

Mr. Swingler: I said that we have draft Regulations, but, as the hon. Gentleman knows, we go through a certain period of consultation with the trade. We


have been considering the 1964 Regulations and it is hoped that in a very short time my right hon. Friend will be able to make an announcement about what we regard as an important matter.

Mr. Geoffrey Wilson: I am glad to hear that Regulations dealing with this matter are being considered. I added my name to the Amendment assuming that it would not apply to passenger vehicles, which in any case, as my hon. Friend the Member for Totnes (Mr. Mawby) said, normally have inside lighting which makes them visible when turning. However, long vehicles, particularly articulated vehicles, when making a turn to the left in the dark can be very dangerous. Military vehicles already have lights on their sides.
However, there is a matter to which I hope the Parliamentary Secretary will pay attention when the Regulations are being considered. This rule is already followed in Sweden, and the Common Market countries have regulations which are recommended although not yet officially approved. I hope that the Parliamentary Secretary will bear those European regulations in mind when drawing up his own, because it would he convenient if the two sets of regulations could be kept in line because of the greater number of vehicles travelling between the Continent and this country on roll-on, roll-off ferries and so on, and if we have a Channel Tunnel the number will be even greater.

Mr. James Dance: I added my name to the Amendment because I thought that the issue needed clarification, and we are grateful to the Parliamentary Secretary for saying that the position is fairly clear.
However, there are one or two things which must be said, because the public is not fully aware of the present danger. When I was at school, although not a great scientist, I learned the rudiments of heat, light and sound, and one of the things I learned about light was that nothing had any colour in the dark. It is only when it is lighted up that it has colour. A white object reflects much more than a black object. That is why people in hot countries are apt to wear light clothes. Exactly the same applies to vehicles. A great dark black lorry

does not reflect very much light, even when seen in good headlights.
This was brought home to me quite recently when a large and very dirty lorry was parked on the side of a country road and when, although I have extremely good brakes on my car and was travelling at a reasonable pace, I almost drove into the back of the lorry because I had not picked it up in my lights. In exactly the same way, an articulated lorry was once turning to the left in front of me. At the moment of turn its rear lights were at right angles to the road and I did not see the lorry until within a few inches of it.
It should not just be permissible to put reflective signs on the side of a long lorry and particularly an articulated lorry. Such a rule should be compulsory. Although the Amendment may not be necessary, it has helped to clarify the position.

10.30 a.m.

Sir Ronald Russell: I would like to support what has been said by my hon. Friends and hon. Gentlemen opposite about articulated lorries and lighting on the sides of lorries. The hon. Gentleman the Joint Parliamentary Secretary may remember that there was a bad accident in Birdcage Walk about two years ago when a car struck a lorry which was turning into Wellington Barracks late at night. I believe that the driver of the car was killed. There has been a reluctance on the part of lorry owners to put either lights or reflective material on the sides of lorries, and I suppose this is understandable because of the expense.
Anyone who has driven in France at night will know that most lorries are festooned with lights, let alone reflective material, and they can be seen a long way off. There is no danger of mistaking blank space for a lorry. Urgent consideration should be given to this. There is no reason why we should not be as good as the French and why we should not avoid these accidents which occur through lorries not having proper lights.

Mr. Webster: I would add my thanks to those of my hon. Friends for what the Joint Parliamentary Secretary has said. I am glad that there are powers in present legislation to make regulations. When will they be ready and when will we have a chance of seeing them? Will


it be before the House rises for the Summer Recess because, as the Joint Parliamentary Secretary knows very well, if we do not debate them we return to a lighting-up time which is much longer. It is not so urgent during the summer, but we will not have a chance to deliberate upon this until the autumn and early winter.
I hope that the Joint Parliamentary Secretary will be able to tell me that the regulations will be laid before the House rises. Can he give us any indication of what progress he has made, and whether these regulations have been to the National Road Safety Advisory Council and whether it has expressed a view? It will be helpful to the Committee to know this. I am glad that the information should be a little more favourable than it looked on 31st May. The Committee owes my hon. Friend the Member for Totnes (Mr. Mawby) a debt.
Both of us raised this point then, and it appeared to me then that the Joint Parliamentary Secretary was trying to say, "Let us get through this limited Measure first." Now we know, as a result of what he has told us, that there are existing powers. I suppose that if he had been able to tell us this—maybe he was not in a position to do so—it would have saved my hon. Friend coming up all the way from the country in order to move his Amendment and have avoided a Monday morning, for which he has all my sympathy.
This matter requires urgency, and I hope that the Joint Parliamentary Secretary can tell us that these Regulations will be introduced before the House rises in order that they may be enforced in advance of the dark nights. What has been done in this Bill is most important and useful, but it is not half as urgent as the point raised by my hon. Friend in his Amendment, nor as the point that I have made in my new Clause, which is not in order. Both of these are more urgent matters, and I trust that the Joint Parliamentary Secretary will be able to give us a progress report on what we consider to be more urgent than the main intentions of the Bill.

Mr. Swingler: I do not know how far I am permitted to go in discussing something that is not in the Bill. I shall

be very sorry if the hon. Gentleman the Member for Totnes (Mr. Mawby) feels that his journey was not really necessary. I regret that, but knowing his keen interest in the Bill I suspect that he would have made the journey in any case. I am glad to have been able to clarify the position, and I would emphasise that the Minister will make regulations obliging the use of certain types of side-lighting. In reply to the hon. Gentleman the Member for Truro (Mr. Geoffrey Wilson), we will take into account the point he raised about uniformity with Europe.
It is because we are involved continually in international discussions, designed to bring about a desirable standardisation especially in Europe—because of the interchange of transport—that many regulations are being held up. We shall endeavour to make new regulations about the side-lighting of vehicles as rapidly as we can, I hope in advance of the winter.
I believe that I said on Second Reading, in respect of regulations to be made under this Bill, if Parliament approves it, that my right hon. Friend is quite determined that the regulations should be made before the winter months. If these powers are granted, we shall certainly proceed as rapidly as possible, but I trust that the hon. Member for Totnes will withdraw this Amendment since these powers already exist.

Mr. Mawby: Let me make it clear that I do not begrudge coming here this morning for this Bill—what I do begrudge is coming up here because this Bill was put on for this morning sitting when I believe that it involves more country Members than town Members. Some consideration should have been given by the Lord President of the Council to that fact. I am grateful to the Joint Parliamentary Secretary for what he has said and for having drawn my attention to the fact that there are powers in present legislation. He has assured us that that power is there, and has gone even further and stated that the Minister will not drag her feet in bringing regulations into force.
I hope that he will not take it amiss if, from time to time, if they do not appear as rapidly as we feel they ought, we nudge him and his right hon. Friend and inquire into the reasons for the delay. In


view of the hon. Gentleman's reply, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause stand part of the Bill.

Mr. Gresham Cooke: Now is the right moment to raise the points that I started to raise at the end of Clause 1. This Clause gives power to the Minister to make regulations for the use of reflective material on a number of components or accessories relating to motor vehicles, in particular in regard to non-reflective number plates. There are three points to which I would like the Joint Parliamentary Secretary to address himself. The first has to do with the use of this reflective material, secondly whether it involves the use of foreign exchange for the production of material to make up the reflective number plates and, thirdly, I would like to refer to the doubts that exist about these adhesive digits.
Will it be possible for these Regulations to be satisfied by sticking reflective material on to a number plate? If this is not so, must the numbers be of a raised type and rivetted on to the plates? This is important, and should be cleared up. Some authorities say one thing, and some another. There are some counties where one would not be prosecuted for using adhesive digits, yet in Brighton recently the owner of a van was fined £10 for using adhesive number plates. This was taken up with the Chief Constable who said that on his reading of the regulations it was an offence. On the other hand, other chief constables say that as long as the numbers can be read from 75 ft. that is all they care about and would not prosecute anybody for using adhesive digits.
This is a point which should be cleared up in the regulations—whether people can take a strip of adhesive material, cut out the digits and stick them on. I do not think that that would be satisfactory, because they would come off or flap loose in wet weather. It would not be a satisfactory solution to the reflective number plate problem merely to allow manufacturers to stick on digits made out of reflective material.

Mr. Dance: Would not my hon. Friend agree that that would play into the hands

of thieves? It would make it easy to change number plates in a second or two.

Mr. Gresham Cooke: That is an excellent point. Instead of having to unscrew a number plate, a thief taking a Jaguar car—they always seem to take Jaguar cars nowadays—would merely strip off the adhesive digits and put on new ones. That is a point which should be carefully considered when framing the regulations.
I am sorry that I was not present on 31st May, but I was abroad on export business on that day. I have always done my best to assist road safety. My hon. and gallant Friend the Member for Eye (Sir H. Harrison) introduced a Bill about 10 years ago for putting two reflectors on motor vehicles and two rear lights. I advised him and helped him, even before I was in the House, because the daughter of the Chairman of London Transport, when coming to a dance of ours at home, ran into the back of a lorry as the lorry driver had only one tiny muddy reflector.
In the interests of road safety, we must do everything we can to ensure that number plates are plain and can be seen from the rear. But there are problems for manufacturers. There is also the problem of whether people will be permitted, under the regulations, to stick on reflective number digits. If so, in my view, that would be unsatisfactory.

Mr. Ogden: I should like to ask my hon. Friend the Parliamentary Secretary whether his Ministry has come to a definite conclusion about the colour of the number plates which may be permitted on the rear and front of vehicles. Will there be two colours, or will the colour be the same at each end?

Mr. Lomas: I was concerned about whether the numbers could he taken off very easily. The Road Research Laboratory test, which was done over two years on vehicles which were subjected to 80,000 miles of use on the road, showed that with normal wear and tear this did not happen. I am told that provided the numbers are put on properly they would not lift. Equally, I made the point that I should be in favour of riveted raised digits being fitted to make sure that they could not be taken off. This is a question on which I hope that the Ministry will lay down certain specifications. I agree that we have to ensure that


the numbers are not interchangeable and that they cannot be taken off and others substituted. The numbers which were utilised in the Road Research Laboratory's test from April, 1964, to April, 1966, clearly showed that this could not and did not happen.

Mr. Dance: The question of having one colour at the back and another at the front is very important. I gather that this is already done in France. I think that the colour is red at the front and yellow at the back. It helps to know whether a vehicle is coming or going. We should if possible try to get some standardisation with Europe, because we are taking vehicles to and from the Continent frequently these days.

10.45 a.m.

Mr. Webster: It is right that the Committee should discuss what should go in the regulations, because if we can give assistance to the Department this is the time to give it. When a regulation is laid, it is a case of take it or leave it. Nothing can be done to amend regulations. My hon. Friend the Member for Twickenham (Mr. Gresham Cooke) is to be commended for what he says about the doubts which exist and the different interpretations of chief constables. It would be useful if we could do something to resolve these doubts before the regulations are laid. I should be glad if the Parliamentary Secretary would tell us whether we shall be seeing the regulations in the next few weeks.
I refer to the point which I tried to raise on Clause 1 about whether existing number plates are adequate. My hon. Friend the Member for Twickenham said that if we have an existing device which is adequate it is unfortunate that we should have legislation under which we shall need to import equipment, whether with dollars or any other currency. I have a letter from a firm in Leeds which states that it is already producing number plates with reflective digits which conform to existing regulations and that the motoring Press and the Financial Times have been sufficiently interested in the safety aspect of the plates to devote editorial space to them. I am not resisting the Bill because the principle of it is necessary, but it seems to me that if a firm pioneers something as a result of

which road safety is improved it is unfortunate that we should have to import a substitute material.
I return to the point which I made on Clause 1 and the quotation which I did not get right then. Carlyle said that that Government was best which legislated least. I agree with the point about security and that we do not want every thief who wants to take away the Jaguar of my hon. Friend the Member for Twickenham—and, incidentally, I am sorry that a member of the Rootes Group should use a Jaguar car—

Mr. Gresham Cooke: I was not advocating the use of Jaguar cars. I said that they seemed to be very agreeable to every thief.

Mr. Webster: I am glad that my hon. Friend has made that point abundantly clear, because it was causing me a good deal of worry.
I hope that the Parliamentary Secretary can assist us about the security of the device, particularly in connection with the use of trailers. The number plate of a trailer has to conform with the number plate of the tractor. As the Parliamentary Secretary well knows, there is already adequate scope for putting fresh number-plates on a trailer. It may be that the next time there is a bullion raid the thieves will use a trailer. Far be it from me to instruct the criminal classes about how they should go about their business. It would appear that there is adequate scope for abuse.
I return to the point which I made earlier about a firm which has pioneered a safety device. It seems that, as usual, we seem to be penalising British enterprise—[HON. MEMBERS: "No."]—I hope that we are not, and certainly it is something that we here should hesitate to do.
I agree with what the hon. Member for Liverpool, West Derby (Mr. Ogden) said. I did not like the colour he used in giving the exhibition however. I once suffered from jaundice and yellow is a dazzling colour, particularly on a Monday morning, if one has suffered from jaundice.
I hope that the Joint Parliamentary Secretary will indicate what is to be in the regulations. I think that this is the time to do so. This has been a useful


debate and, as a result of it, we have been able to get some indication of what we can expect. I hope that it will result in giving the regulations a fair wind, but it would be helpful to have an indication of what is to come.

Mr. Mawby: I must differ from my hon. Friend the Member for Westonsuper-Mare (Mr. Webster), although it is true that he is asking the Joint Parliamentary Secretary for information rather than anything else. I believe that we are in danger of giving the wrong impression that certain people at the moment manufacturing certain types of goods will be put in jeopardy as a result of the Clause. I cannot see how this would be possible.
The Clause codifies and anticipates certain standards either of reflective or fluorescent material and gives the Minister power to recognise the existence of these things to be fitted either at the front or the rear of a vehicle as she thinks' fit. Secondly, she will have power at least to impose conditions to standardise the type and size to be used. I do not believe that the Clause will do anything to jeopardise the position of any present manufacturer of any items which are now within the law. All we are doing in the Clause is to codify the whole thing and to bring more standardisation into what is obviously a good safety device.

Mr. Swingler: I agree with the hon. Member for Weston-super-Mare (Mr. Webster) that we have had a useful debate. We will take note of all the views expressed. But it would be foolish of me at this point to enter into discussion of technical data and specific dimensions that the Minister may make in regulations. We will take account of all views expressed and there will be an opportunity to discuss the regulations themselves.
I am grateful to the hon. Gentleman for reminding us of the quotation from Carlyle. I shall remind him of it on future occasions when he demands that we produce more Bills and more regulations more rapidly and in greater volume.

Mr. Webster: I was only suggesting that we have fewer Bills. We should have the more essential Bill, bringing more into a smaller number of Bills.

Mr. Swingler: It is hard to satisfy the hon. Gentleman. He wants fewer Bills

and more regulations. We will do our best for him. It will be appreciated that when Parliament has approved the Bill, the Minister will be armed with necessary powers to make regulations and certain technical discussions will be carried through as quickly as possible. We shall take all these things into account.
My hon. Friend the Member for Liverpool, West Derby (Mr. Ogden) raised a point which I dealt with briefly on Second Reading. The tests carried out by the Road Research Laboratory indicate that red reflective material on number plates is considerably less effective than some other colours, and if the maximum benefit is to be obtained from their use it is necessary to relax the provisions of Section 2 of the Act so as to give the Minister the necessary powers to permit use of a colour other than red to be shown to the rear of a vehicle.
Similarly, experiments with distinctive rear markers for commercial vehicles show that the most easily distinguishing marking both by day and night is made up of red reflective, red orange fluorescent and white reflective strips. We are enabling my right hon. Friend to permit such markers to be introduced.
My right hon. Friend will be able, under subsection (a) to make regulations permitting the use of yellow or amber reflective number plates on the rear of vehicles. Similarly, she will be able to make regulations requiring a distinctive marking on the backs of commercial vehicles, which would include white reflective strips. We shall naturally rely, in the technical detail of the regulations, on the results of the experiments at the R.R.L., which indicate that this would be the most satisfactory thing to do. That is as far as I can go now. The technical advice of the Laboratory is being given to my right hon. Friend, but there will be many details, including those which the hon. Member for Twickenham (Mr. Gresham Cooke) raised, about the use of certain kinds of materials.
Under subsection (b) again the Minister will be able to make regulations specifying the kind of materials, the positioning and dimensions. Many details have to be settled. We are relying on getting the best technical information and advice, but I am not in a position now


to elaborate on these things which must form the subject of the new regulations.

Mr. Gresham Cooke: But surely the hon. Gentleman is in a position to clear up the two important questions as to whether these materials will not be more expensive and whether they will have to be imported.

Mr. Swingler: I am glad the hon. Gentleman reminded me. Although in this Clause we are taking powers to require or authorise the use of lights of varying colours, I made it clear on Second Reading, on the authority of my right hon. Friend, that her intention is to make the use of reflective number plates permissive. She will permit motorists who wish to fit reflective number plates, according to certain standards laid down, to do so.
We have no idea, in moving into this permissive phase, having clarified the law on the subject of reflective materials, to what extent that permission will be used by motorists. Therefore, it is impossible for us now to estimate what will be the additional cost. Certain figures were given earlier in the debate by my hon. Friend the Member for Huddersfield, West (Mr. Lomas). Indeed, certain figures are well known about the cost of reflective number plates now on the market. We have no idea, because this power will be permissive, to what extent these number plates will be used. We will go into the matter carefully. I understand that these materials can be manufactured in the United Kingdom.

Mr. Dance: I can see danger here. Let us say that 50 per cent. of the cars on the road have clear, brilliant number plates which can be picked up easily. One might be lulled into a false sense of security and bring oneself up close behind a conventional number plate that is dirty. In such circumstances an accident may occur. I do not believe that this should be permissive. I believe that the Minister should make these materials compulsory.

11.0 a.m.

Mr. Swingler: I take note of that view. I hope that the hon. Member for Bromsgrove (Mr. Dance) will take note of the

fact that I said on Second Reading that my right hon. Friend has declared that, to begin with, we would have an experimental period permitting the use of such reflective materials and number plates so as to be able to draw on the experience gained. Nevertheless, this Clause contains the power to make them compulsory at a later date, if we agree that that is what should be done.

Sir Robert Cary: If it is to remain permissive for the motorist, will it be compulsory for all commercial vehicles?

Mr. Swingler: I have referred to certain commercial vehicles being marked by distinctive strips at the back, and my right hon. Friend is currently considering the compulsory introduction of certain requirements in that respect. However, that does not apply to the introduction of reflective number plates, for example. My right hon. Friend has declared that she will use the power under this Clause to permit all road users to fit reflective number plates if they wish to do so.

Mr. Ogden: The hon. Member for Twickenham (Mr. Gresham Cooke) suggested that the cost of this type of plate would be much greater than that of plates normally in use. The cost of the existing range of number plates varies widely, from the Rolls-Royce type down to the ordinary type. I have heard of a garage in the Midlands which charges £10 for a set of ordinary number plates for a Mini. That is excessive. My information confirms the suggestion of my hon. Friend the Member for Huddersfield, West (Mr. Lomas) that the type of plate which we are discussing should cost no more to the public than the existing type of number plate, even during the permissive period when there is only a small market. Of course, if anyone wants his number plates made in ivory, they will cost more, but at the moment the cost of the plates which we are discussing is almost identical with that of the ordinary plate.

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Orders of the Day — Clause 3.—(CONTROL OF CERTAIN ILLUMINATED SIGNALLING DEVICES.)

Question proposed, That the Clause stand part of the Bill.

Mr. Webster: This Clause deals with lights to the rear of vehicles for the purpose of illuminating any device for giving signals to overtaking traffic. I hope that I am in order in asking the Parliamentary Secretary about the signs which the House approved some time ago and which have been in use for three or four months when breakdowns have occurred on motorways. Are these signs operating in a satisfactory manner? I am concerned particularly about the Chiswick flyover and the raised part of that motorway, which are extremely hazardous places when there are breakdowns. I take it that such signs are approved of by this Measure, but is the Minister satisfied that people understand what they mean? Are there any figures available to show that they have been successful on motorways? Can the Minister give us any good news at this stage?

Mr. Swingler: The hon. Member for Weston-super-Mare (Mr. Webster) loves to range far and wide. We are supposed to be considering devices to give signals to overtaking traffic. I take it that he is referring to the special fog signals on motorways, which are not attached to vehicles and do not give signals to overtaking traffic, but are erected on the shoulders of motorways. I have not to hand the information which he desires. So far as I know, they are working well. However, I undertake to get information about the current position of these signals, and I will give him any data which we have about accidents. I think that he will be aware that, according to a recent report, some improvement has been achieved in the way of a reduction in the number of accidents on our motorways and the casualties resulting from them. The extent to which that is attributable to the signalling system which we have devised is a matter about which I have no information to hand, but I will let the hon. Gentleman have it as soon as possible.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 4 ordered to stand part of the Bill.

Bill reported, without Amendment.

11.5 a.m.

Mr. Swingler: I beg to move, That the Bill be now read the Third time.
I welcome the support which the Bill has received from all parts of the House. Whatever differences of opinion there may be, I know that we are united in our determination to tackle the problems of accidents on our roads in a variety of ways. I am sorry that it is not possible to deal with all the problems in one omnibus Bill per session. However, even though the present Measure is more in the nature of a mini than an omnibus, hon. Members should not underestimate its importance, nor the extent to which it has resulted from genuine back bench effort and agitation, drawing our attention to the subject with which it deals.
We all agree that we must take full advantage of new techniques to combat accidents. To do this, sometimes our existing laws have to be altered, because, when they were drafted some years ago, it was quite outside the powers of foresight of any of our legislators to predict the technical advances which have been made over the past few years.
This is the situation with which the first two Clauses are intended to deal. We wish to be able to permit the wider use of reflective material for the rear lighting of vehicles, while still retaining some powers of control.
First, we had to deal with the dubiety about the legal status of these materials. If they are to be used as an adjunct to lights on vehicles, it must be clear to all concerned what the position is about the law governing the lighting of vehicles. That is why it is necessary to clarify the legal status of reflective materials in the first Clause.
Having defined that position, my right hon. Friend is advised that, with the law as it stands at the moment, it would be illegal to use anything except red reflective material to give out light to the rear of a vehicle.
We do not intend that there should be a multiplicity of colours on the rears of vehicles. That would only lead to confusion. It would also go against the basic principle that the back of a vehicle is denoted by a red light or reflector. However, as long as we control carefully the colours used, we have every reason to believe that we can avoid confusion and,


at the same time, make it very much easier for vehicles to be seen at night. That is almost as important as making certain that the driver can see properly.
Similarly, there is little point in saying that a reflective material may or shall be used unless, at the same time, we can say what the optical qualities of the material ought to be. If its reflective properties are inadequate, insufficient light is reflected to serve any useful purpose. At the same time, if they are too efficient, the drivers of other vehicles may be dazzled. It is necessary, therefore, that my right hon. Friend should have the powers contained in Clause 2 to lay down technical details. These will enable her, by means of regulations, to control the colour, optical qualities, positioning and amount of any reflective material which should be used on the back of any vehicle. At the same time, they will enable her to make provisions for special types of vehicles if she so wishes.

Mr. Gresham Cooke: The hon. Gentleman has told us twice that his right hon. Friend will have power, by means of regulations, to lay down the size, colour, positioning, and so on, of any reflective material. He has not mentioned the problem of rivetting and sticking on the digits, which is most important.

Mr. Swingler: I promise to go into that. I admit that I have not covered all the details with which we will have to be concerned, and I hope shortly to reply to the hon. Gentleman.
As I said on Second Reading, I confidently expect my right hon. Friend to use these powers to permit the use of reflective number plates by those drivers who wish to fit them to their cars, and that regulations on the subject will be made before the onset of the long winter nights.
Finally, there is the question of controlling the devices intended to give signals to overtaking traffic. Signals which are misunderstood, or not well understood, are a potential danger on the roads. When most drivers signalled by hand there could be, and were, misunderstandings. It was sometimes difficult to know whether a driver was intending to turn right, or was merely showing the passengers in the

rear of his car the Palace of Westminster as he drove by.
Mechanical devices for direction signalling are replacing hand signals, and illuminated devices may be more readily distinguishable than hand signals. This is particularly true at night, and so long as everybody knows what the signals mean no danger should arise. It is when signals are not understood that accidents are likely to occur. It is therefore extremely important, when new devices are invented, to try to clarify and standardise the position with regard to their use. Since it seems that there may be a loophole in the present Act which could be taken as permitting the use of any signal, provided it was intended as a signal to overtaking traffic, we feel that this should be stopped, and this is why Clause 3 is in the Bill.
Perhaps I might stress one point which arose during the Second Reading debate. None of these powers will in any way prevent or inhibit developments in vehicle lighting. All that we are doing is ensuring that control can be exercised over the development of new systems, and that new ideas are properly tested and assessed before being tried out on the roads. Perhaps most important of all, we want to ensure that they are properly publicised so that, before they are put into general use on the roads, everybody knows what they mean.
I think it is generally agreed that this is a good Bill, and again I express my thanks to the many hon. Members on both sides of the House who have contributed to its provisions and considered it with such speed. I commend it as a Measure which will make a further contribution to road safety.

11.12 a.m.

Mr. Mawby: I do not want to detain the House for more than a few moments. I was very pleased to hear the Joint Parliamentary Secretary say that he hoped the regulations would come into operation by the time the dark nights arrived.
The hon. Gentleman said that there must not be a multiplicity of colours, and that the regulations would permit the use of certain colours other than red. I hope that these will be made known as soon as possible because manufacturers will want to distribute the appropriate number plates throughout the country as soon as possible so that those who wish to use them can do so.
The use of reflective number plates is to be permissive, and only permissive, which means that a motorist will be able to fit them if he wants to. I hope it will be laid down quite clearly that those who purport to produce these plates will have to conform to a certain standard before they can put a British Standards stamp on them. This will ensure that those who purchase them are buying plates with good reflective surfaces, and are not buying a pig in a poke. There would be no difficulty if the use of these plates was obligatory because there would then be some check on whether they were up to the required standard. I hope, therefore, that steps will he taken to ensure that those who purport to sell reflective number plates will make them of the standard which the customer will expect. I hope that they will be made of proper reflective material, and will be up to a proper optical standard.

11.15 a.m.

Mr. Lomas: The speed with which the Joint Parliamentary Secretary and his Department have handled the Bill almost makes them guilty of exceeding the speed limit. I say that because an early-day Motion on the subject was signed by a large number of hon. Members in January and February. my ten-minute rule Bill was given a First Reading on 19th April, this Measure received its Second Reading on 31st May, and today, 12th June, we are seeing it through its final stages here. This is a truly remarkable performance and it shows that my hon. Friend and his Department, and indeed all hon. Members, realise that this Measure can save a number of lives.
I am greatly indebted to my hon. Friend and his Department, and indeed to all hon. Members, for the help which I have received with my Bill. It was in October, 1965, when I read an article in a Sunday newspaper that this matter was first brought to my attention. Since then I have come to realise the tremendous advantages which can be obtained from using reflective material for number plates, and it is good to know that before the winter nights arrive these plates will be in use.
When I spoke on 19th April and 31st May I said all that I wanted to about the position and dimension of these plates. I hope that it will not be long

before we get the regulations which will enable us to give effect to the slogan which I coined on an earlier occasion, namely, that all motorists should be able to see and be seen. If we can achieve this, I am sure that we shall reduce the number of appalling tragedies on our roads.
Even though it may have been a little inconvenient to the hon. Member for Totnes (Mr. Mawby) and to other hon. Members to come here on a Wednesday and Monday morning to consider this Measure, I am sure that everyone will think the effort will have been worthwhile if by it we save a certain amount of suffering on our roads and bring back a little sanity into our road lighting regulations. Without further ado I conclude by thanking by hon. Friend, his Department, and all hon. Members for the tremendous help which they have given me, and I hope that this Measure will very soon become law.

11.18 a.m.

Mr. Webster: I, too, thank the Joint Parliamentary Secretary for what he said, and wish the Bill every success in the other place. We have dealt with the Bill extremely speedily. It has taken only ten days to get it through this House.
I am glad that the Government decided to support the ten-minute rule Bill introduced by the hon. Member for Huddersfield, West (Mr. Lomas). Had they decided to do so earlier instead of getting involved with the controversial Measure dealing with the abolition of live hare coursing, this Bill might by now have completed its stages in the other place. This is something on which the hon. Gentleman can reflect, but I shall not sour a happy morning by pursuing that any further.
The hon. Gentleman said that this was a mini-Bill. This is reasonable, because we have to get it through before the autumn evenings are with us. It is probably best not just to travel hopefully, but to arrive, but I regret that my new Clause was not considered to be in order. I have discovered the word for the disposal units to which I referred. I understand that they are called—

Mr. Speaker: Order. The hon. Member cannot pursue what is not in the Bill. He knows that.

Mr. Webster: I regret that it is not, Mr. Speaker, but I shall leave it there.
I agree with the Parliamentary Secretary that we do not want a multiplicity of colours on the backs of vehicles. I am glad—although I do not very much like it for political reasons—that we shall stick to the colour red at the rear of vehicles. It is probably basically right. The signs that motorists have to deal with are baffling enough now without making them more difficult, and the same thing applies to signals.
It is also right that people should know what signals are for. I sometimes wonder whether they do, and whether motorists should not be subjected to a thorough examination, on a snap basis, in order to see how many of these signals are known by them. I believe that the answer would be disappointing, to say the least.
Having said that, however, I congratulate the Parliamentary Secretary on his celerity in getting the Bill through and wish it success in another place. I hope that no Amendments are made in another place, except to do what we have failed to do here. I hope that the Bill will turn out to be a successful Act and that the regulations will do something to mitigate the loss of life on our roads.

11.21 a.m.

Mr. Ogden: I pay tribute to my hon. Friend the Member for Huddersfield, West (Mr. Lomas) and to the Joint Parliamentary Secretary and his Ministry on the progress made by the Bill in such a short time. We are now left with roughly 36 days for the Bill to go through another place and for any regulations to be made. Remarkable progress will have to be made by the Bill if the Minister is to be able to make regulations before we rise, so we may have to wait until the beginning of September before they are made, if there is to be sufficient time for us to discuss them when we come back in the middle of October.
Reference has been made to the fact that permission would be given before the onset of the dark nights of the coming winter, but we can have some dark nights in June, July and August. I suggest that the Minister might follow the precedent set by the Home Secretary on the Murder (Abolition of Capital Punishment) Bill, which suspended capital

punishment. If this Bill has gone through the other place and has become law by the end of June it could be indicated to people outside that it would be rather foolish to prosecute someone for using these number plates, in view of the fact that their use would be made lawful by regulation very shortly. This would be as useful a piece of legislation in June, July and August as it would be in September and later.

Question put and agreed to.

Bill accordingly read the Third time and passed.

Orders of the Day — ANCHORS AND CHAIN CABLES BILL

Order read for resuming adjourned debate on Question [31st May], That the Bill be now read a Second time.

Question again proposed.

11.23 a.m.

Mr. Edward M. Taylor: I have been waiting in the corridor since 31st May to make sure that I would have the opportunity of continuing my speech, and I am glad to do so today. My hon. Friend the Member for Weston-super-Mare (Mr. Webster), speaking on the previous Bill, said that he was grateful for the fact that the Bill was being proceeded with speedily. I agree with him, because that Bill was a good Bill. On 31st May I had an opportunity to study briefly this Bill, and I have studied it since. I do not share the view of my hon. Friend the Member for Weston-super-Mare that this Bill should be rushed through.

Mr. David Webster: I have never used those words with reference to this Bill.

Mr. Taylor: Certainly not. I am glad to know that my hon. Friend agrees with me about this Bill, because this will need to be substantially amended. Quite apart from that, the Minister has a clear obligation to explain the reasons why certain provisions are in the Bill and others are not.
Let us consider the general question of the major change that is being made in the present legislation as laid down in the 1899 Act. That Act was very specific in its provisions, but apart from one or two minor items this Bill is a general


enabling Bill to enable the Minister to make what regulations he wishes at the times he thinks appropriate. It would make Parliamentary business a great deal easier if all Ministers merely asked the House for general enabling Bills from time to time. If this were done there would be little need for morning sittings—or afternoon or evening sittings. We should require only one or two sittings a year to give Ministers general enabling powers.
That is what is being done in this Bill, and I do not like it. I was involved in all the discussions and negotiations which led to the shipbuilding regulations, when I worked in the shipyards on the Clyde. Those regulations, in principle, contain many things which I feel should be included in this Bill. I want to refer only to a few points. First, there is the question who should carry out the testing of chain cables and other similar equipment. Clause 1(1) provides that the Minister shall have powers to make rules, and for the supervision of testing and marking of equipment, and its inspection, by surveyors of ships appointed under the Merchant Shipping Act, 1894
or by such other person as the Board of Trade may authorise for the purpose.
That is wrong. The Act of 1899 specified that testers had to be licensed, and clear conditions were laid down for the way in which tests should be carried out. It would be wrong to be too specific, but this difficulty could be overcome if the Minister inserted such words as "a suitably qualified person", or "a fit person", or provided that the person concerned should be qualified for the job. This was clearly laid down in the legislation dealing with shipbuilding.
The testing of chains and other similar equipment, at a time of changing technology, when new techniques and new equipment are being developed, should not be carried out by a person merely authorised by the Board of Trade. The Minister of State will probably say that they would not just pick any old bloke from the street to carry out this work. We appreciate that any sensible sane Minister would not do that. But why not cover the point by a reference in the legislation?
Section 6 of the 1899 Act referred to the appointment of an inspector and said:

The Board of Trade shall appoint a fit person to be inspector of testing establishments, under this Act, and may remove any person so appointed.
That was the inspector of testing establishments, but a similar provision could be used in respect of the testing of equipment
Then we have the question of the definition of a ship or vessel. Several points were raised in connection with this on 31st May and considerable discussion took place on the question whether hovercraft should be included. I was amazed, startled, taken aback and disappointed with the Minister when I read what he said, as reported in col. 31 of the OFFICIAL REPORT of 31st May. One of my hon. Friends was pointing out that when the Bill had been last discussed a specific assurance had been given by the late Mr. Redhead that hovercraft would be included in the Bill. I was therefore quite shocked to read what the Minister said when that specific reference was read out by my hon. Friend. The Minister said:
I was aware of that and of the reason why Mr. Redhead was prepared to accept it. He was anxious to get the Bill through.—[OFFICIAL. REPORT, 31st May, 1967, Vol. 747, c. 31.]
That was a shocking thing to say. I am sure that Mr. Redhead said what he did because, on the basis of information received by his Department, he believed it to be right. If this is the case, there is no excuse whatever for the present Minister, looking forward to a good number of days in this Parliamentary Session, thinking that he can skate over this legislation, and not bother about hovercraft, because it may involve technical difficulties. This is a question of what is right or wrong. If it were right on 19th May, 1965, and unless there are very telling reasons advanced by the Minister against it, it is right that hovercraft should be included now.

Mr. Webster: Is it not a fact that the carriage of persons by hovercraft in the last two years has increased considerably, and that this has become a most rapidly expanding form of transport, making the point, then accepted by the then Minister of State, all the more valid?

Mr. Taylor: My hon. Friend is quite right. If any hon. Members need confirmation on this point, I would suggest that they read the annual report of British


Railways for 1966, published about a fortnight ago. This contains a full report of the extension in hovercraft developments, with a regular service which has increased its traffic three times in one year. On the other hand, it has lost a considerable sum of money, but there is no question that, once these things begin, they will continue. Undoubtedly, hovercraft development is something which is here to stay—something which will grow.
It is wrong for the Minister to bring a Bill like this, which may last for another 60 or 70 years, before the House without including a definition of a hovercraft. I hope that he will indicate that he intends to change this. Clearly, a hovercraft is a ship or a vessel. It has chains and anchors, and to that extent I cannot see any possible justification for saying that the standards of general maintenance and testing of chains for use by hovercraft should be different.
There is also the question of oil rigs. I visited John Brown's yard on Clydebank only ten days ago and saw there the fifth oil rig to be built by that firm. They are huge structures and will require to be fixed to the North Sea bed. There is no question that a considerable number of chains will be required. These rigs are launched like a normal ship, although it is a difficult operation, and are clearly things which are on the surface of the sea, requiring chains and anchors. Why have oil rigs been excluded? We are entitled to an explanation. This may be a marginal case, and it may be that to bring oil rigs into the definition would bring in a lot of other things which would not be wanted. Members are entitled to know what regulations will cover oil rigs and what is the position regarding the safety of these rigs.
We also have the matters referred to by the Minister as a justification for this Bill on the last sitting. He said that the Act of 1899 had two major defects. First of all, it embodied many detailed requirements about the ways in which various anchors and cables may be tested. I would not regard being specific as a defect. This Bill is not at all specific, except for one matter, which I think is wrong and to which I shall refer later.
The second thing he said was that under the old Act manufacturers were compelled to test anchors and cables in

licensed proving houses. He also mentioned that new materials have been introduced which required to be covered. These new materials would require to be tested in the same way as anchors or chain cables made from older materials. There is no question that this Bill, being a general enabling Bill, will give powers to extend testing to these. At this stage, we should have an indication of what new materials the Minister has in mind.
We were very concerned with this at the time of the shipbuilding Regulations and specified the materials that we had in mind very carefully. We should know whether the Minister's definition of chain cables includes in any circumstances a fibre rope or a fibre rope sling, or wire rope. What other new materials does he have in mind? It is all very well to say that new materials are here and others will come, but shipowners ought to know precisely what new materials the Minister has in mind.
Another point arises on this question of new materials and techniques. We have general rules about the testing of chains, but one thing in which I am particularly interested is tests carried out after repair. Obviously, new materials are being introduced and new chains will require to be tested under any legislation. Obviously, there will be periodic checks, but one thing which has been omitted from legislation in the past has been the testing of chains once a major or minor repair has been carried out.
It is vital that, in any regulations made under this legislation, it should be clearly specified that not only should equipment be tested when it is manufactured, and not only should it be tested after a period of time, but also on every occasion when a repair, major or minor, is carried out. There have been a good number of accidents in the shipyards and elsewhere, when chains and other forms of lifting tackle have been broken. I believe that many of these accidents have stemmed from repairs carried out to the chain cable. To that extent, I hope that the Minister can give us a clear assurance that there will be an obligation for the testing of chain cables and anchors after a repair has been carried out.
There is also the question of the vessels to which these regulations will apply. I am not at all clear whether the Bill will


apply to Admiralty vessels. This is important, and there was no question about it in the 1899 Act. It was clearly specified that the Act did not apply to such vessels. This Bill does not refer to its application to Admiralty vessels. If, as the Minister may say, the Bill does not apply to Admiralty vessels, then he is under an obligation to say why, and whether the legislation which will cover Admiralty vessels will be of a comparable standard. We have a substantial number of naval dockyards, carrying out a greater amount of new work than has been undertaken previously.

Mr. Webster: Would my hon. Friend not agree that this point has added importance, due to the practice of the Admiralty selling off some of the vessels that it has constructed? Would he give an indication of what he thinks the testing procedure should be in such a case?

Mr. Taylor: The testing should be of a comparable standard, if not of the same standard. The equipment on merchant ships will be the same, unless the Admiralty vessels are using certain types of chain not available to merchant shipping. We should have an indication from the Minister as to whether this Bill covers Admiralty vessels, and it should be specifically stated in the Bill. If we are to have an advance in our techniques of testing for merchant shipping, then there should be the same advances in the naval sphere. One thing which appalled me in the Bill was that I can find no definition of an anchor or a chain cable. This was alarming. We can understand why we should not be too specific, but what is the point of having a Bill dealing with anchors and chain cables when there is no indication in it of what an anchor or chain cable is.
The only remote definition which I can see is in Clause 1(7), which provides:
In this section 'anchor' and 'chain cable' include any shackle attached to or intended to be used in connection with the anchor or cable …".
But we are still at a loss to know what is an anchor or a chain cable. This is a point of substance, and I hope that we shall have a satisfactory definition.
This may be regarded by some as a niggling point—

Mr. Eric Ogden: Hear, hear.

Mr. Taylor: —but it is not. I know that the hon. Member for Liverpool, West Derby (Mr. Ogden) takes a very real interest in shipping matters. He brought forward a Private Member's Bill which I was glad to support which was in the interests of the industry, and I congratulate him on having done so. I do not think that he could regard this as a niggling point if he has the interests of the shipping and shipbuilding industry at heart, as I believe he has.
In the Shipbuilding and Ship Repairing Regulations of 1960 we went to considerable lengths to define what a chain was. The Minister may say that regulations will be brought forward which are specific, but I still feel it is going a bit far to have a Bill about anchors and chain cables and which gives general enabling powers without specifying precisely what an anchor or chain cable is. I hope that before the Bill becomes law, if it ever becomes law—and there are doubts about that—we shall have a definition of a chain cable and anchor.
I come to the more general points about the Bill. I have mentioned that the Bill is not specific in many respects, but there is one respect in which it is specific. In Clause 1(3) it provides:
If any person applies to any anchor or cable which has not passed the tests prescribed by rules under this section any mark prescribed by those rules for denoting that it has passed those tests, or any other mark calculated to suggest that it has passed those tests, he shall be liable on summary conviction to a fine not exceeding four hundred pounds.
That is a very considerable fine, because it is a major offence. But I wonder why the sum of £400 was chosen and whether it is in line with the practice in respect of similar misdemeanours, not only in the law of England but, more imortant, in the law of Scotland. It might be difficult to apply this provision in Scotland, where our court procedure is much different from that in England. Would the Minister indicate how these powers will operate in the Scottish courts? I see real difficulties arising from this provision.
I have mentioned a number of questions which should be answered clearly and precisely by the Minister. First, why is there so little specification in the Bill? Why is it a general enabling Bill? Secondly, why cannot we have a definition of a person who is to undertake testing? Could not the words "suitably qualified"


or "fit" be inserted in the Bill? Thirdly, why exclude hovercraft and oil drilling rigs from the Bill? Fourthly, what sort of new materials does the Minister have in mind in saying that this is one of the reasons why the Bill should be introduced? Why are not Admiralty vessels included, if they are not included? Then there is the question of the penalty of £400 on summary conviction. How will that operate in the Scottish courts?
These are serious problems. However, it would be fair to say that our general objection to the Bill is that the powers in it are too general. I hope that something will be done to put these matters right.
I come now to the question of where testings will be carried out. We do not get any guidance from the Bill on this point. The 1889 Act was specific. In the First Schedule to that Act several places were specified at which tests could be carried out. I was interested to see reference in it to the Clyde Navigation Trust, which would be able to test establishments in Glasgow and in the Clyde; to the Municipal Corporation of Glasgow, which covered the Glasgow area; and to the trustees of the Port and Harbour of Greenock for testing establishments at Greenock. That provision is now out of date because there has been a merger of the Greenock and Clyde Navigation Trusts. I wonder whether due note has been taken of this change and whether there will be any major alteration in the position in Scotland.

Mr. Webster: My hon. Friend has referred to the proving houses. I think that there is great anxiety, about which he would know, regarding small manufacturers of anchors and chain cables who, if the proving houses are closed down, will have great difficulty in getting their anchors and chain cables tested. I am sure that my hon. Friend is well aware of this point, and I hope that he will support the continuance of these proving houses.

Mr. Taylor: As my hon. Friend says, I have been made aware of some concern about that point. What alarms me more is the lack of concern in some places and the fact that some people do not know what is going on. People should be made

aware of these dangers which could arise. Certainly several people are not aware of them.
These are some of the objections which we have to the Bill, and I hope that they will be answered. Bearing in mind the present position of the shipping and shipbuilding industries which are both facing such a grave crisis, this is not the time for bringing in legislation of this sort, which is so wide that real and perhaps unnecessary concern will be caused in the shipping and shipbuilding industries. The Clyde is a major centre, not only for shipbuilding, but for our great shipping industries. The Minister has a real obligation to ensure that any legislation which is introduced provides, not only for safe working conditions, but for the continued prosperity of shipbuilding and ship repairing. I think that it is clear from what I have said and from the speeches of my hon. Friends today and on 31st May that we hope that the Bill will be considerably amended.
I am well aware of the problem of speaking on the Second Reading of Bills of this sort on a Monday morning or a Wednesday morning. The Whips and others often think that thereby a Member is indicating that he wishes to serve on the Committee dealing with the Bill. However, this is a Bill in which a substantial number of Members have a real interest and I will understand the difficulty if it is not possible for me to take part in the Committee on this Bill. I assure my hon. Friend on the Front Bench, the Member for Weston-super-Mare, that I shall well understand if it is not possible to put me on the Committee.

Mr. Webster: My hon. Friend is being too modest. It would be very difficult for the Committee to consider this point without his presence. He has touched only lightly on some of these very grave matters. I hope that my hon. Friend, who works very hard in the House, will reconsider his decision, although I am not sure that the decision is entirely his.

Mr. Taylor: I have made no decision. I was simply indicating that, because of the great interest that there is in the Bill, I would understand if it were not possible for me to serve on the Committee. Hon. Members know that I am particularly interested in this subject. If I


were appointed to the Committee, I should do my best to clarify the Bill.
I have raised points today and on 31st May which perhaps can be dealt with in greater detail in Committee. They are important and significant points, and I trust that they will be answered by the Minister. If they are not, my hon. Friends who are favoured with appointment to the Committee will press them even more forcefully.

11.50 a.m.

Mr. T. L. Iremonger: I should declare an interest in so far as I am a Lloyd's underwriter, and if the ground tackle carries away I must pay through the ship. I therefore have a direct personal financial interest in the Bill, but that is as nothing, although I should declare it as a formality, compared with the interest which I like every hon. Member have in the Bill, because ultimately it is about the lives and safety of persons at sea.
Nothing could touch more closely the interests of this country. I represent a constituency within convenient distance of the London docks and the City of London. Many seafarers and those interested in their safety are among my constituents, and I therefore approach the Bill with a more than usual degree of interest, if that is possible.
But there is yet another interest that concerns me. I do not like the smell of the Bill. I smell here the dread scent of autocracy and bureaucracy. I am afraid that I see here an indication of the movement towards making Parliament more efficient. I am all for efficiency, but not in Parliament. The business of Parliament is to be inefficient. From the point of view of Ministers, this is a very efficient little Bill. It empowers the Minister to make regulations. It does no more than that, and the representatives of the people are nut on one side. There is only the farcical provision of the Regulations under the Bill being subject to consideration and the House having the nominal power to annul them. But this will not do in general and in particular.
I shall come to the particular later, but in general the House should strenuously object to the whole tenor of the Bill and the tendency of which it is symptomatic for Ministers to introduce Bills giving them power to make regulations. The

most important feature of a Bill of this nature is the detail in it, and it is the duty of the House to scrutinise the detail very closely. The point of doing that is that if the House is not satisfied we should be able to amend it. We shall bring all the resources of the Opposition to that task in Committee, as is our duty.
But if we are not to have our way in Committee the House should deny the Government the Second Reading. What will happen if the Bill goes through in anything like its present form? The regulations will be submitted to the House and we shall have the nominal right to refuse the Order making them, but, as hon. Members know perfectly well, that adds up to absolutely nothing. I have yet to know in 14 years' experience in the House a single order being refused. I have never seen an Order introduced by the Government making regulations of this kind fail to get through.
Therefore, we cannot stop the regulations and, what is far more sinister, we cannot amend them. We may well be in the position of either having to go through the farce of refusing the bringing into force of the regulations or having to assent to regulations which are better than nothing but not as good as we think the House should make.
I now turn to some of the matters of detail, which we shall have to consider at greater length in Committee. There are some omissions in the Bill which strike me as being peculiarly sinister. It purports to make provision in substitution for the Anchors and Chain Cables Act, 1889. A lot has happened at sea since 1889; a lot has happened in many fields of technology; and a lot has happened in the organisation of the maritime powers and their merchant and other fleets.
For one thing, a large part of the world's commerce is now carried in ships flying flags of convenience. Many ships flying flags of convenience are officered and manned by Her Majesty's subjects, people for whose lives we are largely responsible. I am not sure that the narrow scope of the 1889 Act, and, presumably, the narrow scope contemplated by the regulations to be made under this abortive Bill will go far enough, unless provision is made to try to get some discipline into the ships of fleets registered in places like Liberia, Panama, Costa


Rica—and no doubt in the future Dahomey and the Congo and Urundi Burundi and all those other new states. It should not be regarded as beyond the wit of Parliament to devise some provision for the safety of these people, so that ships which come into British ports must have their anchors and cables of a standard which will mean that if the ships rely on them at sea there will not be loss of life.

Mr. Webster: My hon. Friend is no doubt aware that the Merchant Shipping Act, 1964, which ratified the Convention of 1960, covered all the flags of convenience. Unfortunately, this is a Bill for which there is no covering convention, and I have not yet had any satisfactory statement from the Government that they will make it enforceable on ships coming into this country. My hon. Friend's point is essential.

Mr. Iremonger: I am obliged to my hon. Friend. This matter will have to be gone into with great care in Committee, and if the Minister does not feel able to draft suitable Amendments we shall have to give him assistance. We hope to have an assurance from his hon. Friend when he winds up that he will take this very seriously, and that he will be amenable to the rather full Amendments which we shall probably have to offer.
A further point which greatly troubled me is that I believe that the Act refers to anchors over 168 lb. Therefore, the Bill will presumably be limited in the same way, and I am not sure that that will be enough now. Many more people go to sea nowadays in small vessels than was the case in 1889. Those were the days of MacMullen and the great pioneers of British yachting, as it used to be called, all going to sea around the dangerous coasts of this country in small vessels. Captain Joshua Slocum had only just finished his circumnavigation single-handed in the sloop "Spray". He rounded Cape Horn, but he went through the Magellan Straits the other way to Sir Francis Chichester.
The great pioneers of small boat cruising had not fully emerged. It was a very rich man's pleasure. MacMullen was the first man to sail single-handed the type of yacht then in vogue, narrow gutted,

deep keeled vessels, of over 20 tons, rigged with huge spars, heavy canvas and ground tackle that would hold a battleship, and with paid hands to work them.
Nowadays it is a very different scene. Anyone who goes to our coastal ports knows that one cannot get a mooring anywhere from the north of Scotland round the south coast and up to the north of Scotland again. East, west, north, and south the creeks and harbours of this country are crowded with small vessels. At the Daily Express Boat Show one sees the enormous change that has come upon the maritime scene with so many amateurs going to sea. Many of them are very skilled and fully competent to take their vessels to sea, but the tendency nowadays is for people to go to sea with the idea that it is rather like driving on the roads, but taking a small vessel to sea without experience can be very dangerous. I should like to see some consideration given to making provision for the proper testing of the kind of ground tackle that these small vessels carry, particularly in the range of toplines and sea anchors.
While we are on this question of ground tackle, we should consider whether we should not enlarge the scope of the Bill and take account of the kind of anchors and cables, whether they be chain or other cable, specially for the use of ships and boats. These are often in greater danger from defective ground tackle than are large vessels.
No large vessel lies in an exposed anchorage without steam up in readiness for getting under way at a moment's notice. That is not so with small boats. They are most likely to be in exposed positions without the power of motor, sail or steam. Often their only power will be the pulling power of those aboard and they are often overcrowded. These vessels should often be equipped with ground tackle to hold them, especially on a lee shore.
This is not just a matter of testing the strength of the anchors or cables, but of seeing that they are of proper design, are stowed properly and can be quickly stocked if necessary. It is a matter of seeing that the cable—the coir rope—is stowed in such a way that it may be paid out so that the anchor can be brought into use quickly.
I should not like to leave all these questions to the Minister to make regulations, possibly overlooking a whole range of responsibilities of this House to which we should like to give attention. We shall have to consider this in Committee. I hope that, on reflection, the hon. Gentleman will take the Bill back and try again so that, on the Second Reading of its successor, we may see what regulations he has to propose and will be given an opportunity to improve them.
I am sorry that there is no indication that a serious defect in the 1899 Act is to be remedied in the new regulations on sea anchors. When the Act was brought before the House, Captain Voss had only just completed his famous voyage in the "Tilikum," a small, narrow, cranky, light draught Indian canoe in which he made the immortal voyages which he recounted in his book, "The Venturesome Voyages." He took it over the great oceans of the world. It was a vessel in which most hon. Members would think it unwise to venture out on the Serpentine. He took it through typhoons and through the most dangerous latitudes and seasons all over the world.
He was able to do this by having perfected the art of using the sea anchor or drogue. He used to come in at exposed beaches, with breaking rollers, using great skill in perfect safety by using his drogue. He recognised that a vessel was only likely to be pooped, as sailors say —the waves coming in astern and breaking over the vessel—or to be broached—swinging round so that the run of the sea is abeam instead of end to end—if she was under way and that the method of preventing her having way through the water was to tow to stern a sea anchor. With that disadvantage, the vessel does not make much progress.
Captain Voss cunningly overcame that great defect, however, in sea anchors by securing a trip line to the narrow vent of the sea anchor. I am sure that hon. Members are informed of the shape of a sea anchor. It is a cone with a large end and a narrow end, through which there is a vent through which the sea can run so that it does not burst the cone. It stops the vessel having any way on. One can put a trip line on the narrow end of the sea anchor. One has

the trip line secured to the transom or counter and when one wants to proceed ahead one lets slip the main line, which is attached to the wide end, and then way comes again, with the narrow end of the sea anchor trailing away comparatively harmlessly.
By using a sea anchor, Captain Voss managed to take the way off his vessel when he saw dangerous waves coming eastern and this allowed him to proceed without being pooped or broached. He would let go and then make way again as the situation allowed.
Although people had been sailing small boats for hundreds of years when the Act was introduced in 1899—and since we are dealing here with small boats in which the crews and passengers of ships have to sail when the large vessels founder, as they do increasingly with all these Greek shipowners and what-not running them—we should make sure in this legislation that some attention is paid to the design, type, shape and specifications of sea anchors.
I cannot allow the Second Reading to proceed without making some reference to the hovercraft. This cannot be brushed aside. In opening the debate, the Minister of State said that it was not yet clear whether hovercraft were technically ships. But this Bill is not about ships in themselves. It is about anchors and cables and ground tackle. We are talking about anchors on which people will have to depend upon for their lives.

The Minister of State, Board of Trade (Mr. J. P. W. Mallalieu): This Bill is about anchors and cables for use in ships registered in the United Kingdom.

Mr. Iremonger: That is the kind of pettyfogging distinction that I hoped we could avoid.

Mr. Mallalieu: The hon. Gentleman has not read the Bill.

Mr. Webster: That did not prevent the Minister of State's predecessor, Mr. Edward Redhead, accepting the principle that a hovercraft should be a ship for the purposes of the Bill. Mr. Redhead did this during the Committee stage of this Bill's predecessor, as a result of which I withdrew the new Clause to which reference has already been made. The Minister of State has made some unfortunate remarks.

Mr. Iremonger: I am obliged to my hon. Friend the Member for Westonsuper-Mare (Mr. Webster). I cannot accept what the Minister of State says. I have here a photostat copy of the 1899 Act, and the Act describes itself as:
An Act to simplify and amend the Law relating to the Testing and Sale of Anchors and Chain Cables.
This Bill in its Long Title describes itself as
A Bill to make new provision in substitution for the Anchors and Chain Cables Act, 1899.
Therefore, with respect, I am entitled to say that the Bill is not about ships but about anchors and chain cables. It may have provisions with reference to ships, but there is nothing in the Long Title to oblige us to confine ourselves to ships. The Bill is about anchors and chain cables.

Mr. J. P. W. Mallalieu: The hon. Gentleman has no doubt read Clause 1, which is the main Clause of the Bill, and what it says there about ships.

Mr. Iremonger: I am prepared to accept that it says,
… testing of anchors and chain cables for use in ships …
I am objecting to the limitation of it. I am satisfied with the long title,
A Bill to Make new provision in substitution for the Anchors and Chain Cables Act 1899.
The long title of the 1899 Act says that it is for anchors and chain cables. I am objecting to the limitation of the wide ambit of the long title to the
… testing of anchors and chain cables for use in ships …
I think we should say "for use wherever they are required to be used".
Whether or not a hovercraft is a ship, it is a vessel which carries human beings whose lives are likely to be in danger if occasion arises for the use of anchors and cables and they are not adequate. Close attention should be given to this. After all, hovercraft are supremely passenger vessels and there will be a large number of our constituents travelling in them. The proposal is that the hoverport should be in Pegwell Bay, a place where extremely short, nasty, choppy seas arise. If a hovercraft were to become immobilized—engines not working—it would require to anchor in the tideway there

and if her ground tackle was not efficient there could be a disaster—she could be swept out on to the Goodwin Sands before rescue could be effected. Anything might happen. Should there be a hovercraft disaster which could be traced to defective ground tackle, we should look very silly, having tied legislation on anchors and chain cables to use in ships, if we had to say, "A hovercraft is not a ship; we are sorry that people have been drowned."

Mr. J. P. W. Mallalieu: I cannot let pass the remarks of the hon. Gentleman the Member for Ilford, North (Mr. Ire-monger) and at a previous sitting, the hon. Member for Gosport and Fareham (Dr. Bennett), that there are no safety regulations for hovercraft and that people who travel in them are somehow at risk. The House must be aware that there are safety regulations. Under temporary legislation, hovercraft are classed as aircraft. They are governed by the Air Navigation Order, 1966, and the Air Registration Board has the most stringent regulations about anchors and chain cables used in hovercraft. This is an important industry, as hon. Members on both sides have said, and I would hate it to be thought that the safety of people who travel in hovercraft is not already taken care of.

Mr. Iremonger: If it is already taken care of by regulations, we have not had an opportunity to debate it. This is what we are objecting to in the Bill. We are told, in the first place, that all we can have under the Bill is regulations which we have to have on a take-it-or-leave-it basis, and we are not able to amend. When we object to that and say, "What is more, we are not able to amend the Bill by putting anything in it about hovercraft", we are told that hovercraft are looked after by regulations which we have not had an opportunity to amend. I would rather see the regulations concerning the safety of hovercraft that depend on anchors and cables brought into the Bill in detail so that we can consider and debate and amend them in Committee, if necessary. I do not withdraw from the position that we should have the safety of hovercraft that depend on anchors and cables as part of the Bill, subject to debate in Committee or in the House.
Airmen are not qualified to consider the safety of craft which depend on anchors and chain cables. This is a very doubtful operation. The anchoring of light craft such as hovercraft—aircraft—in the waters off the south-east coast of England is not only a matter of the strength of the anchor or of the cable; it is a matter of the springing of the ground tackle. It is a matter of rigging the chain or cable with a spring—maybe by dropping a weight down the cable—so that the snubbing of the vessel does not come straight on the anchor. Small vessels pitch very heavily in the kind of seas which we get around our coasts. If there is a strong wind one gets a taut line between the anchor and the bitts of the vessel. The hon. Gentleman is a seaman and he knows that the bitts can be torn out of a craft in those conditions.
In a way, the stronger the cable the more dangerous the situation. What is needed is something which will take the snub off the cable. I should like provision to be made that there shall be a proper fitting to run a weight down the cable to take the strain off the anchor and the cable and the bit so that the cables and the anchors are not regarded as being adequate simply because of their strength. A chain is not a suitable material for this. It is the sort of work for which preferably coir rope should be used.

Mr. J. P. W. Mallalieu: That is what happens now under the A.R.B. Regulations. They have nylon warp to Admiralty specification.

Mr. Iremonger: The hon. Gentleman keeps reciting these regulations. They may be admirable, but my objection is that if we are to have a bill on the subject we ought to have them brought into it and made the subject of discussion in Committee. I would not object to the provision of nylon rope. I would welcome it. However, I would like to be able to reassure the House that it had been considered. I am afraid that the Bill will leave it entirely to the Minister's Department—which, I am sure, will be very efficient and conscientious about it—but we shall have to take or leave what it produces without being able, from our experience or the experience of our constituents, to make any amend-

ments to satisfy ourselves that we have done the right thing.
I am concerned that no consideration should have been given to the great development in the design of anchors which has taken place since 1899, namely, the broad category of stockless anchors. The Schedules to the 1899 Act, specifically mention anchors' weight, ex stock; that is to say, the weight of the anchor without the stock. By definition, it is concerned with stocked anchors. I am surprised that the modem type of anchor used by steamers, in which there is no stock, is not referred to. Presumably the concern was exclusively with stocked anchors. A stocked anchor is very much more efficient than a stockless anchor. A much greater weight of stockless anchor is needed to have the same holding power as a stock anchor. I would always rather have a stock anchor—I am not talking about the C.Q.R. anchors, but about the traditional stockless anchors used in steam ships.
There is a further complication that it is not only a matter of testing for the breaking strain of a stockless anchor which involves the safety of the ship. There is also the adequacy of the design, the possible danger that a stockless anchor can be dropped and that the flukes will jam and fail to drop down into the bed of the sea and be pulled in to provide proper holding power. Therefore, although the Act which is to be repealed might have proved adequate in so far as it concerned itself with the strength of stocked anchors, we have no guarantee at all that the regulations to be made under the Bill will concern themselves with the rather different specifications and requirements for stockless anchors. I cannot feel that any serious thought—I have no doubt that I am wrong, but I cannot be assured of it—has been given to this problem. When we are shown the fruits of the Departmental consideration, we shall be powerless to do anything about it, powerless to improve it, and the House should therefore have a look at the provisions of the Act which the Bill seeks to repeal.
Section 1, for example, starts off with the definition of anchors and cables as being the anchors of any British ship. I have already referred to that as being a classification which we ought now to


reconsider. It excludes any anchor not exceeding 168 lb. in weight, again a rather dangerous limitation in present circumstances.
Section 5 talks about the fees to be paid for inspection or testing and yet we are to have no indication of what the Minister has in mind about the provision to be made for fees for testing under the new regulations. If the fees in 1899 should not exceed£50, they ought to be up to at least£200 today. We have not had a Socialist Government throughout the whole of that period, or the fees would have had to have been increased to£2,000 or£3,000; but, even with Liberal and Conservative Administrations for some of the period, war and inflation have made the figure of£50 totally unrealistic.

Mr. Webster: Has my hon. Friend observed that Section 11(3) is very precise about how a licensed dealer or tester shall apply to the Board of Trade for a change in the fees?

Mr. Iremonger: I was hoping to work towards Section 11 if time permitted, but I must hasten on in order to make sure that no point of scrutiny escapes me. I have a copy of the Act with me and it is important to consider its Sections one by one. I had skipped Sections 6 and 7 and was about to refer to Section 8 which deals with tests.
It refers to the tensile strain and the breaking strain. Since 1899 new techniques have been developed, new materials have been introduced and processing of steel has undergone great changes. The whole technological philosophy of fatigue has been introduced. New methods of detecting flaws by x-rays and spectroscopic methods have been introduced. I am not sure that the mere brute process of giving something a good pull and seeing whether it busts is a test with which we should be satisfied in this technological age. How do we know that when he introduces his regulations the Minister will do full justice to all the possibilities of the technological resources which may be at the disposal of those who are testing ground tackle?

Mr. Edward M. Taylor: The trouble with many systems of testing is that they weaken the items being tested.

Mr. Iremonger: On that matter I should be subject to persuasion, especially by my hon. Friend who is saying that if something is tested, while it may survive, it will never be the same again.

Mr. Taylor: Testing could affect it.

Mr. Iremonger: It could affect it and we should therefore be now thinking in terms of not subjecting the ground tackle of ships to tests which, for all we know, may leave it no longer as sound as it is supposed to be. Ought we to introduce new methods of testing and new qualifications for those who do the testing? Obviously, my hon. Friend or I could give a good pull at something and see whether it busted, but if we were to have a more sophisticated form of testing, he and I would need to have qualifications for subjecting it to spectroscopic processes and so on, and while I do not know about my hon. Friend, I should be very diffident about taking that on if the Minister were to appoint me one of the testers of chain cables.
Section 11 is a very dangerous Section. It deals with the scale of charges for testing anchors and chain cables. How do we know that in the new regulations the charges will be reasonable? How are we to know on what basis they are to be made? How are we to know what is the Minister's philosophy? Surely, we have a responsibility to our constituents who are yachtsmen, and their passengers, for the scale of charges for testing the ground tackle of small vessels. Will those be the same as the charges for testing the ground tackle of commercial vessels?
I should have thought that we would need much more explanation of what is in the Minister's mind before giving the Bill a Second Reading. I am sure that if we do not get a satisfactory explanation, if the Bill goes to Committee my hon. Friends will be able exhaustively to examine all the possible variations and combinations and permutations of charges for testing. We might have different scales of charges for foreign vessels.

Mr. Edward M. Taylor: I am sorry to interrupt my hon. Friend again. I hope that our attitudes are not diverging and I hope that he is not suggesting that the British shipping industry, especially in the Clyde, should subsidise


those of his constituents who are wealthy enough to have yachts.

Mr. Iremonger: There are obviously important sociological implications in the Bill which had escaped even me. It is clear that we should not dismiss the Bill in a cavalier fashion and if we are to examine it as conscientiously as we should, we should consider these obviously important aspects.
Section 15 of the 1899 Act deals with private testing and uses words which open questions which the Minister should have tried to answer in submitting a new Bill. The words are:
other chain or cable
and the words
cable (not being a chain cable)
This opens a whole realm of distinction to which reference has already been made and about which I hope to make some observations, if not this morning, then on some other suitable occasion. Obviously, although it does not say so in the Short Title, the Bill includes cables other than chain cables. When I was training to be a naval officer, I was always taught that the distinction between chain and cable was that cable had a stud in the links and that chain did not. The object of having cable instead of chain was that, when piled into the chain locker, studs in the links stopped the links from overriding one another and forming a sort of half knot in the chain, which would obviously be very dangerous, because chain in that condition and subject to great strain would be more liable to break than chain stretched out in its proper tensile position.

It being half-past Twelve o'clock, the debate stood adjourned.

Debate to be resumed Tomorrow.

Orders of the Day — RAILWAY PASSENGERS, BIRMINGHAM (SNOW HILL STATION)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. McCann.]

12.30 p.m.

Mr. Victor Yates: I am grateful for the opportunity to raise a question that has caused more widespread anxiety and dissatisfaction in the city of Birmingham than I can remember during the time that I have represented part of the city in this House—over 21 years. It is the matter of the unsatisfactory arrangements for railway passengers in Birmingham, pending the Minister's decision regarding the future of Snow Hill Station. I can understand that the Minister will tell me that the Ministry of Transport has no responsibility for certain day-to-day measures and that this is a matter for the British Railways Board.
I am raising matters of such serious concern that I hope that the Minister will not dismiss this merely by referring to the powers of the Ministry. Some months ago the Minister of Transport received a deputation from a number of Members of Parliament in the Birmingham and Midlands area and representatives of local authorities. At that time the Minister was warned that there were grave fears about the closing of Snow Hill Station. Then I had not quite made up my mind about the matter. I thought that there may be a good deal to be said for the closing of the station.
Now, after the experience of the last few months, I am fully convinced that Snow Hill Station should not be closed. The more I go into the matter, the more I am convinced of it. If the Minister is considering closing a station that station ought to be able to run normally, apart from changes in the trains, without measures which create considerable inconvenience. What the British Railways Board did, while the Minister was considering this matter, was to close every entrance to the station except the most unpopular one. I have appealed for the front entrance to be kept open. The present entrance, which is most inconvenient, could be closed. To alter a


station in this way is to some extent to prejudice the whole consideration of the matter. If the Railways Board had it in mind to deliberately sabotage the Minister's consideration of the matter, it could not have done better than it is doing now.
Anyone who knows Birmingham will know that the decision to keep Moor Street Station open was not a good one. It is most inaccessible and is not the solution to the problem. If I were to quote from the large number of letters that I have received, more than I have received on any subject since I became a Member, apart from one or two major national issues, I should need much more time.
I wish to give three quotations from letters. The first is from the managing director of a firm in my constituency, who says:
For years I have travelled to Birmingham Snow Hill, and in fact I am a season ticket holder of some 35 years, although I have lived in Dorridge for eight years … and as you know Birmingham well, and you will see that from Moor Street the distance I have to walk is almost treble. I am sure that the majority of travellers have been inconvenienced likewise. This diversion to Moor Street was done without any reference to users, in a most arbitrary manner.
A resident of Stourbridge has sent me a letter, in which he says:
Due to a derailment on the curve at Smethwick West on Wednesday, May 31st, all Hereford, Worcester, Kidderminster, Stourbridge and intermediate station trains were diverted to Snow Hill. What a good job it was available.
What an inconvenience it was, because there is no bus service from one station to another, and it means crossing Birmingham at its most crowded area. The letter continues:
To close the front entrance of Snow Hill is a vicious and dictatorial action, to cause inconvenience to the public.
I have put representations to the Ministry. The trade unions, public servants and people in Birmingham are utterly disgusted at the arrangements which have been made. Another constituent writes, and this is a copy of a letter sent to the divisional manager:
Prior to the partial closure of Snow Hill station my total travelling time in the morning from my home in Prospect Lane, Solihull, to my factory in Warstone Lane, Birmingham, was not more than 35 minutes and the return

journey in the evening also took 35 minutes. My minimum time for travelling in the mornings is now 50 minutes",
and owing to delays in trains, it is often 75 minutes each way.
One can add much more to all of this inconvenience. As a result of closing Snow Hill there will be no direct service to the Welsh coast, or to the south coast. There were services from Snow Hill to Bournemouth and Brighton.
I wish to refer now to New Street. It is beyond my comprehension how planners can plan a station in this way. I have had the pleasure of travelling from London to Birmingham, and at New Street there were two sections, where one could walk from the train to a taxi or to a bus. Now this has changed. The front entrance is closed, and a temporary staircase has been erected. In order to get to the station, one as to walk up 30 temporary wooden stairs, a long way over the roof, walk down 36 steps to the next level and to reach the station, down another 36 steps. So one has to go up 30 and down 72 steps.
This is temporary, and there has been such an outcry that the railway authorities have put a temporary entrance at the front. This is limited to between 8 a.m. and 9.30 a.m. and 4.30 p.m. to 6 p.m., so that other people travelling have to suffer this inconvenience. I cannot describe how inconvenient it is to old people and, people with families, particularly bearing in mind that there are escalators from the main station to the bridge. Those escalators do not work after half-past ten in the evening. I have been inconvenienced when travelling from London on a late train and having to carry heavy luggage up all these steps. It is unfair.
I ask my hon. Friend the Parliamentary Secretary to consider whether the temporary entrance to the station can remain open at all hours. Would he make representations to the Railways Board to ensure that in the ultimate planning of the station people will not have to tolerate this inconvenience? This entrance from New Street—he main centre of Birming-ham—is called" the hole in the wall". I should like to see the reconstruction of the station to provide for an entrance from New Street without the necessity of having to go up and down these steps.


There are no down escalators, which is extraordinary for a modern station.
It is difficult to describe the inconvenience which is caused to the travelling public at this station. There is a tiny refreshment room which is not as big as one on Snow Hill Station. Last night I saw people standing up. I have even seen a policewoman giving first aid in this crowded tiny room. This is most unsatisfactory. There is no proper provision for the workers. There is no accommodation for the 253 drivers except in the old huts left by Bryants the builders.
The electric trains are good when they are in order, but there are evidently many technical difficulties. My experience has been unfortunate. I have travelled on them many times when they have not reached their destination on time. Last night my train was 20 minutes late and I had to wait 25 minutes for a taxi. The Railways Board seems to be obstructive and hostile to the approaches made by the travelling public.
The Minister will no doubt say that there is a body called the Transport Users' Consultative Committee. How is this committee constituted? My information is that there are 25 members of it and that not one-third of them use the railways. I do not see how people who do not use the railways can understand the indignity and inconvenience which is caused. Furthermore, the secretarial staff of the committee cannot be independent. It is housed in the same buildings as the Railways Board in Birmingham. I should have thought that, as so much inconvenience was caused, the first thing which this committee would do would be to consider the hardship to the public. The Minister, in reply to me, said that he did not know why the public did not consult the Transport Users' Consultative Committee. I should have thought that he would have inquired and would have insisted that it was most important that the committee should consider this matter.
It is in sorrow that I criticise what seems to me a very bad example of a nationalised industry. I have worked in private industry. I am sure that if private industries were guilty of causing such inconvenience to the public something would be done, and done speedily. Perhaps the station was opened before it was ready, but I am sure that a good deal

of the inconvenience would be removed if people could use the alternative service at Snow Hill and be allowed to go through the front entrance instead of having to walk a long way. There is a strong case to be made for the opening of more entrances at the station, pending the Minister's consideration of the matter.
I hope that the Minister will not make a decision until very much more has been heard about the effect on the public of Birmingham. A city with a population of over one million is entitled to have reasonable transport facilities. If they are unsatisfactory, as is the case at present, more and more people will turn to the motor car. I do not think that the bus service is entirely satisfactory. Old people and people with children find it increasingly difficult to travel on the railways.
I hope that my hon. Friend the Parliamentary Secretary will take my remarks seriously and will deal with them today or will put them to the Minister. I beg the Minister not to make a final decision until much more has been heard about this matter. I should like to take a high-powered deputation from the whole of the Midlands to the Minister to show the dissatisfaction that there is on this matter. Trade unionists and the public are frustrated. There are large blocks of offices and banks in the centre of Birmingham to which the nearest approach is Snow Hill station. Having to get to these offices and banks by using the other station is causing grave inconvenience.
A lot more could be said on this subject, but I ask my hon. Friend the Parliamentary Secretary to give careful consideration to the matters which I have raised.

12.48 p.m.

Mr. Christopher Price: I wish to back up some of the points made by my hon. Friend the Member for Birmingham, Ladywood (Mr. Victor Yates). It is probably right that, on financial grounds, British Railways should centralise station facilities in Birmingham. From that point of view, it is right to close Snow Hill; and I realise that many of the facilities at New Street are temporary and will get better.
I reinforce what my hon. Friend said about the entrances to New Street station, which are absolutely appalling. Many


of the faults in the design of the station are emerging. Incidentally, it is one of the worst station designs I have seen in Europe. It is in what I would call the British public lavatory architecture tradition—and it is a very bad example of that. But the worst feature is the ascent of 30 steps and the crossing of what some people have described as the Siberian waste of the vast plateau on top of the station. So far we have seen what happens in the spring and summer. What this waste on the top of the station will be like during the coming mid-winter is impossible to imagine. I hope that other entrances will be opened by then.
Snow Hill Station is virtually closed already, and it is hypocritical to think that we have any proper closure procedure if the Railways Boards is able, by closing all reasonable entrances, to circumvent that procedure. I hope that we will get rid of this hypocrisy and force the Board to keep the station open until a decision has been made or at least ensure that that decision is soon enough to enable the Board to run its financial affairs properly.

12.50 p.m.

The Joint Parliamentary Secretary to the Ministry of Transport (Mr. John Morris): I have listened with great interest to the speeches of my hon. Friends the Members for Birmingham, Ladywood (Mr. Victor Yates) and Birmingham, Perry Barr (Mr. Christopher Price). I know my hon. Friend the Member for Birmingham, Ladywood has been very concerned with this issue over a substantial period. He has corresponded with me about it and has also raised it in conversation. I am glad that he has raised it today. I will try and reply in the short time I have available. Nearly all the matters my hon. Friends have raised are questions of management which, under the Transport Act, 1962, are made the sole responsibility of the Railways Board. That will be no surprise to my hon. Friend the Member for Ladywood. When we corresponded, I explained the position to him but I appreciate his wish nevertheless to have these matters aired in this House. Clearly, they are important questions and should be aired.
My hon. Friend stressed in particular the inconvenience that travellers are

suffering following the Board's closing the main entrance at Snow Hill Station. It may be helpful if I explain to the House just why this is something on which it would be quite wrong for my right hon. Friend to try and intervene. As I have said, questions of this kind—that is, question of day to day management—are placed by the 1962 Act in the sole responsibility of the Board. There is only one proviso. If there are representations to the local Transport Users Consultative Committee and it refers the matter to the Central Committee which, in turn, makes a recommendation to the Minister, then and only then does my right hon. Friend have power to issue a direction to the Board. My hon. Friend is aware of that I believe.
In this case there were indeed representations to the T.U.C.C. and it considered them on 20th April. I do not know whether my hon. Friend knows that.

Mr. Victor Yates: Yes.

Mr. Morris: This adds force to what I have to say. I understand that the Committee concluded that, in view of the Board's reasons for the closure—its desire to operate the revised services into Snow Hill as economically as it could, as part of its general anxiety to keep down the deficit—it could not support the representations.
There is therefore no question of any reference to the Central Committee or of any recommendation from that Committee to the Minister. In these circumstances I do not think it would be right for me to take up the time of the House by going into the merits of the question; the Board have made its management decision, the proper consumer body has studied the representations and has drawn its own conclusions.
My hon. Friend has suggested it would have been better if the T.U.C.C. had been told in advance about the changes. I think generally it is helpful to both the Committees and the Board if there is this sort of informal contact; though there is of course under the Act no obligation on the Board to do so. I understand the West Midland Committee do in fact find London Midland Region most helpful in answering their queries.
My hon. Friend also referred to the accesses to be provided at New Street Station. As the House will know, this


station has been comprehensively re-built as part of London Midland Region's electrification programme. I had the privilege of going to the opening. I confess I am sorry that the occasion on which I should have to speak about the new station should be one of criticism, because I think in many ways the Board has done a magnificent job in producing a right up to date major terminus which accords so well with the new spirit of that great city.
But if detailed complaints have been made about the accesses it is right that they should be looked into. Here again the proper body for such examination is the Transport Users Consultative Committee, which is specifically charged with considering and, where desirable, making recommendations about any matters affecting the services and facilities provided by the Board which have been the subject of representations.
In fact in this case also the Committee has received representations. I know that it has been looking into them with great thoroughness and that members of the Committee have made a special investigation of the sites in question. But I could not tell the House what their conclusions might be. This is because the matter is still within the consultative machinery. If the Committee should decide to make a recommendation to the Central Committee, and that Committee in turn were to make one to the Minister then and only then would she have the power, if she thought fit, to intervene.
I can tell the House, however, that it was as a result of some suggestions by the Committee about the present temporary access from Stephenson Place that some practical improvements have been made, for example to the steps and to the handrails. I think this is a good example of what can be achieved by this sort of informal contact between the T.U.C.C.s and the regions. The wider matters, such as whether this arrangement is to be permanent, are still in the consultative machinery.
Hon. Members have referred to the reduction of services at Snow Hill, particularly to the Welsh coast and other parts. Again, however, I must point out to the House that these reductions are, under the Transport Act, 1962, matters

of management for the Board. We in the Ministry knew the Board were going to make these changes, in order to get the best possible return on their investment in electrification. But it was entirely their decision. This does not mean of course that the public have no right of redress. On the contrary it is open to them, notwithstanding the current closure proposals to withdraw all services into Snow Hill, to make representations to the T.U.C.C. about the current level of service—though not the reduction itself—if they feel it is inadequate and this would bring into operation the procedure I have described.
Hon. Members have also raised the question of the Minister's decision on the Snow Hill to Wolverhampton closure proposal itself. I know that Members and the people in the area are anxious that there should soon be an end to the present uncertainty about this and other services. All I can say is that my right hon. Friend fully appreciates the need to take a decision as soon as she can.
The considerations outlined by my hon. Friend the Member for Ladywood indicate that this is a matter which will need a little time to investigate. We shall need to study thoroughly all these considerations to ensure that at the end of the day the right decision is taken. I know that the delay is causing anxiety but I am sure that I carry my hon. Friends with me in saying that it is better that there should be thorough examination of this very complex proposal and that in the end, the decision should be the right one, even though it may take a little time.
I see it has taken me almost as much of the House's time to tell Members why I could not answer their points in detail as it might have done to answer them. I ask the House's pardon. But I wanted to make it absolutely clear what my right hon. Friend's statutory position is in these matters. The Transport Act, 1962, left questions of management to the Railways Board, subject to the very important proviso that the T.U.C.C.s should have the duty of looking into representations by the public, in the knowledge that if they feel something is wrong and the Board are not willing to put it right, they have a direct line of access to the Minister. In this situation my right hon. Friend wants the T.U.C.C. machinery to work.


This is why she has decided only recently, and has begun the work, to widen the basis of their representation. This has already been done in many parts of the country.
My right hon. Friend is anxious to ensure that the T.U.C.C.s represent a wide variety of people, including those who use both the railways and other services. I do not carry all the details of the Birmingham area in my head and I will write to my hon. Friend the Member for Ladywood. But I know that a number of appointments have been made of people

representing women's organisations, the National Parks, the disabled and the elderly, among others who place almost complete reliance on public service. All these matters that have been raised will certainly be studied by the Board. It will consider what my hon. Friends have said. They can properly go through the existing machinery and therefore to the Board itself.

The debate having been concluded, Mr. DEPUTY SPEAKER suspended the Sitting until half-past Two o'clock, pursuant to Order.

Sitting resumed at 2.30 p.m.

Orders of the Day — ROYAL ASSENT

Mr. Speaker: I have to notify the House in accordance with the Royal Assent Act 1967 that the Queen has signified Her Royal Assent to the following Act:
Industrial Injuries and Diseases (Old Cases) Act, 1967.

Oral Answers to Questions — VIETNAM

Mr. Orme: asked the Secretary of State for Foreign Affairs what representations he has made to the United States Government regarding the escalation of the war involved in their proposal to increase the numbers of troops in Vietnam.

Mr. Dickens: asked the Secretary of State for Foreign Affairs what representations he has made to the United States of America about the proposed increase in their armed forces serving in Vietnam, in view of the danger of further escalation of the war.

The Secretary of State for Foreign Affairs (Mr. George Brown): I have nothing to add to the reply which my right hon. Friend the Prime Minister gave to a Supplementary Question by my hon. Friend the Member for Lewisham, West (Mr. Dickens) on 6th June.—[Vol. 747, c. 803.]

Mr. Orme: Is my right hon. Friend aware that there is a growing concern in this country about the threats of escalation of the war? Could he say what positive steps Her Majesty's Government are taking to try to bring about negotiations and the end of this terrible war?

Mr. Brown: I have said that many times in this House, and we are doing our utmost to do it. However, it means approaching more than one party to the war. It means trying to get in touch with those who entered the demilitarised zone in flagrant breach of the Geneva Convention, as well as those who responded. I am doing my best.

Mr. Dickens: May I press my right hon. Friend a little further? Will he state what is the present attitude of Her Majesty's Government to the further escalation of the war in Vietnam by the Americans and, in particular, will he deal with the potential threat of an American land invasion of North Vietnam?

Mr. Brown: I have no reason to suspect the latter. I am against the escalation of the war, and would very much welcome the support of my hon. Friend to oppose those who, from North Vietnam, from China and elsewhere, are in fact encouraging the escalation.

Mr. Rankin: Can my right hon. Friend say if forces from any other source or nation are entering the theatre of war in Vietnam?

Mr. Brown: Like the South Vietnamese, the North Vietnamese have allies and friends. There is no reason to think that either is failing to use them.

Oral Answers to Questions — ADEN

Mr. Winnick: asked the Secretary of State for Foreign Affairs if he will make a statement on the latest position in Aden.

Mr. Evelyn King: asked the Secretary of State for Foreign Affairs what is to be his policy in the matter of the Eastern Aden Protectorate and its relationship with the Federation of South Arabia; and if he will make a statement.

Mr. Marten: asked the Secretary of State for Foreign Affairs if he will make a statement about the future policy towards Aden.

Mr. Wall: asked the Secretary of State for Foreign Affairs if he will make a statement on Aden and on his discussions with the Federal Ministers.

Mr. Eldon Griffiths: asked the Secretary of State for Foreign Affairs what further constitutional proposals he has for the South Arabian Federation and on what date he now expects Aden to achieve independence.

Mr. Stratton Mills: asked the Secretary of State for Foreign Affairs if he will make a further statement on the present situation in Aden.

Mr. Fisher: asked the Secretary of State for Foreign Affairs whether he will make a further statement about the constitutional arrangements for Aden and South Arabia prior to independence in 1968.

Mr. George Brown: Sir Humphrey Trevelyan has now had time to settle in and has made a number of important reports which I am now considering. I will be in a position to fulfil my promise to the House to make a full statement of policy at the beginning of the debate planned for 19th June.
On internal security in Aden, although there has been no fundamental change I regret to say that in the last few days two British servicemen were killed and five were wounded, and one British civilian was killed and two were wounded.
The United Arab Republic/Israeli war, and the lie about British intervention broadcast by Cairo radio as an alibi for its defeat, has increased tension in Aden and there were some disturbances which, however, were contained without difficulty. As two of them were in the Eastern Aden Protectorate, elements of the Irish Guards have been flown there as a precaution.

Mr. Winnick: While appreciating that reply, and deploring the acts of violence which have taken place in Aden in the last few weeks, can my right hon. Friend say whether there is any chance of a change in the Federal structure and if our minds are open to that possibility? Secondly, is he optimistic that in the next few months there can be direct British negotiation with the main nationalist organizations—Flosy, obviously?

Mr. Brown: Both of these are the sorts of matters with which I want to deal in the very full policy statement which I intend to make next week.

Mr. Marten: Is the right hon. Gentleman aware that President Nasser has said that he will continue the struggle towards victory, and would he, therefore, dissociate himself from the remark by his right hon. Friend the Secretary of State for Defence that what is happening today in the Sinai Peninsula has no reference to our position in Aden? Could we not have the statement before the debate?

Mr. Brown: I have not heard of that remark, and the last thing that I would want to do is dissociate myself from my right hon. Friend the Secretary of State for Defence. I am often asked to dissociate myself from other people, but I do not think that I would from my right hon. Friend the Secretary of State.
On the general issue which the hon. Gentleman raises, perhaps he will be kind enough to wait until I make a full statement next week. I will fulfil my promise to the House to make a very full statement of policy at the opening of the debate, and then the House can proceed to debate it.

Mr. Stratton Mills: In the light of the events of last week, will the right hon. Gentleman give his assessment of whether or not, in his view, there is a danger of an external attack upon the South Arabian Federation after independence?

Mr. Brown: I do not think that I can answer that question just like that. One would have to assess much that is currently happening in the Middle East. One would have to be in a position to assess the events of the last few days. I think that the hon. Gentleman will agree that it is a wee bit early to do that. I might be in a better position to do so next week.

Mr. Fisher: Has the Foreign Secretary been able to make any progress in reconciling the very different aims and interests of the Arab traditionalists in South Arabia and the Arab nationalists in Aden, without which it will be very difficult for us to hand over to a united and powerful federation and without which we may be handing over to chaos?

Mr. Brown: I do not consider that we are handing over to chaos, but obviously there are difficulties here. That is why I decided to change the High Commissioner. That is why I asked the House to be allowed to have a little time to think about the changes to be made. Obviously one wants to hand over to a more viable and widely constituted Government, if one can bring it about, than the one there at the moment. By next week, I hope to be able to present to the House a wide range of proposals which I trust the House will think commend themselves to it.

Sir Alec Douglas-Home: Will the Foreign Secretary reconsider the timing


of his statement? The House has been very patient. Could he not make it on Thursday or Friday, so that we might have it in our possession over the weekend and, thereby, make the debate that much more valuable?

Mr. Brown: When I was in Opposition, I always used to say that to the Government—[Interruption.] I never expected the Government in those days to respond; neither did they. However, there are other more serious reasons than that. In fulfilment of my pledge, I want to give the House a full statement. If I am to do that, I want to do it having taken into account all the various elements which make it up—political, security, external defence, and the rest. I shall not be in a position to do that until next week—

Mr. Sandys: rose—

Mr. Brown: I really think that the House as distinct from the right hon. Member for Streatham (Mr. Sandys), will be better served if I open the debate next week with a full statement—[Interruption.] Since heads are being shaken and the right hon. Gentleman is jumping up and down, may I remind the Opposition Front Bench, slightly undermanned as it is at the moment—[Interruption.] I mean in terms of quality. May I remind them that the Leader of the Opposition called upon me, in terms which I can read out if necessary, to make my statement at the beginning of the debate. I shall do that.

Mr. Speaker: Order. Answers ought to be reasonably brief.

Mr. Sandys: May I ask the right hon. Gentleman, leaving out all his cheap points which I do not propose to take up, whether he realises that nobody objects to his making his statement next Monday; that what we object to is the idea that we must have an immediate debate on this tremendously important issue? Surely he could arrange to have the debate on the Aden Bill postponed if he was not able to make the statement before Monday? Would not that be perfectly reasonable?

Mr. Brown: Certainly not, and I commend to the right hon. Gentleman the statement of the Leader of the Opposition that he expected me to open the debate

with a full statement of policy. After all, that is what debates in the House are for. The idea that the Government must make their statements of policy earlier in order that the right hon. Gentleman is able to compose his speech at leisure later does not normally go along with the practice of the House.

Sir Alec Douglas-Home: The right hon. Gentleman need not worry about my speech. I can compose one very well, but it would be a much better speech, and so would all the speeches from both sides, if the right hon. Gentleman would concede that we should have the information before we debate this important question. My right hon. Friend was not talking about the debate on the Aden Bill. He was talking about a debate on Aden. The debate that we are to have next Monday is on the Aden Bill. Will the right hon. Gentleman try, through the usual channels, to see whether this can be arranged to the satisfaction of everybody?

Mr. Brown: Certainly not. The debate next Monday is on the Aden Bill, and the policy which the Government are going to operate is obviously relevant to the Bill and to the circumstances of it. The appropriate moment for announcing the wide area of policy is on the debate on the Bill which has relevance to it, and I will do it in full. Right hon. and hon. Gentlemen will have a perfect opportunity of discussing it. The purpose of the debate is to discuss Her Majesty's Government's policy, and that is what I will unfold next week.

Sir Alec Douglas-Home: Mr. Speaker, may we have a guarantee from you that when we come to discuss the Aden Bill we shall be able to debate the full scope of Her Majesty's Government's policy in every respect?

Mr. Speaker: I was asked that on Thursday. I must reserve my position. I shall decide what is in order when I see the shape of the debate.

Mr. Moyle: asked the Secretary of State for Foreign Affairs what steps he is taking to strengthen the administration of the High Commission in Aden during the period before independence.

The Minister of State for Foreign Affairs (Mr. George Thomson): We have


recently reinforced the High Commission in Aden by appointing now a number of Diplomatic Service officers who will remain to staff the British Embassy in Aden after independence.

Mr. Moyle: Has my right hon. Friend had time to consider strengthening the High Commission in the light of the events of last week, or does he still consider it strong enough to perform its functions on independence?

Mr. Thomson: We have recently sent a Foreign Office inspector to Aden to make a special report on the point mentioned by my hon. Friend—the need to strengthen the administration in the period up to independence. The principal recommendations of that report have already been carried out.

Mr. Dodds-Parker: What action is the Minister taking to protect the families of the members of the Administration up to independence, in addition to the action taken to protect Service families?

Mr. Thomson: The most careful precautions are taken to protect the families of members of the Administration in South Arabia.

Oral Answers to Questions — EMIGRANTS (MAINTENANCE ORDER PAYMENTS)

Mr. Tinn: asked the Secretary of State for Foreign Affairs what action Her Majesty's Government propose to take to facilitate collection of maintenance payments on behalf of a divorced wife from an ex-husband who has emigrated to a non-Commonwealth country.

The Under-Secretary of State for Foreign Affairs (Mr. William Rodgers): We are considering the amendment of existing legislation in order to provide facilities for the enforcement, on a reciprocal basis, of maintenance and affiliation orders emanating from courts of foreign countries.

Mr. Tinn: Is my hon. Friend aware that that reply will give considerable satisfaction since the incidence of hardship in individual cases far exceeds the number involved? Those affected will be most reassured and pleased to hear that the Government are planning legislation along these lines.

Mr. Rodgers: I appreciate what my hon. Friend has said. This is a genuine human problem, and we are doing all that we can to help.

Oral Answers to Questions — FOREIGN AND DIPLOMATIC SERVICES (RECRUITMENT)

Mr. Tinn: asked the Secretary of State for Foreign Affairs whether he will now take steps to recruit members of the Foreign Service from an older age group than that from which new recruits are normally drawn.

Mr. George Thomson: There is a regular annual competition for recruitment to the Administrative Branch of the Diplomatic Service for candidates aged between 27 and 40 (or 45 in the case of candidates with regular service in Her Majesty's Forces or who are serving or have served in Her Majesty's Overseas Civil Service).

Mr. Tinn: Can my right hon. Friend assure me that such people, when accepted, are fully safeguarded from the point of view of superannuation and pension rights, and that they enter at a salary scale appropriate to their age?

Mr. Thomson: Yes, Sir. They normally enter at Second Secretary or First Secretary grade, depending on their experience. The purpose of this is to enrich the diplomatic service with people who bring into it experience from outside—commercial work, journalism, scientific work, and so on.

Mr. Coe: asked the Secretary of State for Foreign Affairs what weight he gives to facility in languages in the choice of candidates for the Diplomatic Service.

Mr. George Thomson: Candidates are expected to demonstrate a capacity to learn languages. They are tested on the basis of the opportunities they have so far had. They need not be already accomplished linguists. The necessary language training is given after entry into the Diplomatic Service.

Mr. Coe: Has there been an improvement in the number of language candidates going into method 2, because three-quarters of the entrants into the Diplomatic Service are examined through


method 2 and in the past, apparently, results have been very poor?

Mr. Thomson: As I have told my hon. Friend, our prime qualification is not a language facility on entry but the necessary sort of intellectual capacity and ability.

Sir J. Langford-Holt: Is the knowledge of a language or languages a condition of promotion in the Foreign Service?

Mr. Thomson: Yes, Sir. Once candidates are in the Foreign Service they undergo language training, and there are special incentives to learn particular languages. The Foreign Service has set up its own foreign language centre and has its own language laboratory.

Oral Answers to Questions — SOUTH-EAST ASIA TREATY ORGANISATION (COUNCIL MEETING)

Mr. Ogden: asked the Secretary of State for Foreign Affairs if he will make a statement about the recent South-East Asia Treaty Organisation Council Meeting held in Washington.

Mr. George Brown: I attended the South-East Asia Treaty Organisation Council Meeting in Washington from 18th to 20th April, when members exchanged frank views on many problems concerning South-East Asia. I took the opportunity of stressing Britain's interest in the peaceful development of the area, our satisfaction at the new spirit of cooperation between South-East Asian countries, and the urgent need for a negotiated settlement to end the Vietnam war.

Mr. Ogden: May I ask my right hon. Friend whether he is satisfied with the frequency of the meetings of the Council and with the arrangements in force for continuing consultation between those meetings?

Mr. Brown: The answer to both parts of the question is "Yes".

Oral Answers to Questions — UNITED NATIONS

Peace-keeping Rôle

Mr. Ogden: asked the Secretary of State for Foreign Affairs what action he proposes to enable the United Nations to

play a more prompt and effective rôle in dealing with dangerous and difficult international situations where United Nations intervention is desirable.

Mr. George Brown: I do not exclude the possibility of putting forward proposals for reform at the right time. The problem at present is much more the lack of will amongst the membership to make the Organisation effective, than any structural deficiencies in it.

Mr. Ogden: Would not my right hon. Friend agree that there is an urgent need for reform of the United Nations' Charter? Will he at least begin preliminary consultations with friendly Governments to see what proposals can be put forward at an early date?

Mr. Brown: I do not think I agree with my hon. Friend that the need at the moment is to reform the Charter. I think that the need at the moment is to try to produce some will to make the Charter work. As to the second part of the question, I do not think I agree that one should divide members of the United Nations into friendly Governments and unfriendly Governments. I think that one has to work with them all.

Mr. G. Campbell: Can the right hon. Gentleman make any report on progress towards agreement on the validity of and procedure for peace-keeping operations?

Mr. Brown: This is obviously being discussed. It arises very much out of recent events, and it is one of the things which the Security Council and the Foreign Ministers will have to take into account when they meet.

Mr. P. Noel-Baker: Will my right hon. Friend consider proposing that there should be quarterly meetings of the Security Council, with Foreign Ministers as delegates, in accordance with Article 28(2) of the Charter, so that disputes like that between Israel and the Arabs can be dealt with at the proper level of authority and in time to prevent them leading to war, as the recent dispute did?

Mr. Brown: I doubt whether statutory meetings of that kind would help, but I assure my right hon. Friend, having very much in mind the arguments which he has urged on me for some time now,


that I am keeping in mind the question whether an early meeting of the Security Council at Foreign Minister level would be a good thing.

Mr. Evelyn King: Will the right hon. Gentleman accept that the way in which the General Assembly works, giving equal voting power to Togoland and to Great Britain, divorces power from responsibility?

Mr. Brown: I think that in saying that the hon. Gentleman is attacking a very important issue on which the whole edifice is erected. I would not encourage him to go too far along that road.

Secretariat

Mr. Alan Lee Williams: asked the Secretary of State for Foreign Affairs what steps he is taking to represent to the Secretary-General of the United Nations at the start of his new term of office the need for an overhaul of the administrative structure of the United Nations secretariat with a view to both streamlining and strengthening it.

Mr. George Thomson: Her Majesty's Government certainly wish the United Nations secretariat to be strong and efficient. Our views on this matter are known to the Secretary-General, and he is aware that he will have our support for any proposals designed to improve the administrative strength of the organisation.

Mr. Williams: Does my right hon. Friend appreciate that there is a great deal of evidence that certain of the specialised agencies of the United Nations overlap in their responsibilities, and will he press for an inquiry at the highest level in the United Nations to examine the relationship of the specialised agencies with the Secretary-General, as it is a long time now since 1945 and workings of the specialised agencies need to undergo some change?

Mr. Thomson: I agree that there is overlapping among these specialised agencies and it is a matter for concern. The E.C.O.S.O.C. meeting is one of the places where this matter is under review, and it also comes under the consideration of the Secretary-General, and I hope that it will be helped by the kind of

reorganisation mentioned in my hon. Friend's original Question.

Mr. Fortescue: As a former member of the staff of the United Nations secretariat, may I ask the right hon. Gentleman whether he is aware of the view held by many there, somewhat paradoxically, perhaps, that the structure of the United Nations would be strengthened if the salaries were not so extravagantly high?

Mr. Thomson: That is a separate point. The important matter here is not the numbers employed but the effectiveness of the actual administrative structure; and it is that which requires some attention.

China

Mr. Molloy: asked the Secretary of State for Foreign Affairs if he will now take all necessary measures to seek to obtain admission to the United Nations of the People's Republic of China.

Mr. William Rodgers: My right hon. Friend the Minister of State said on 25th April that we shall continue to work for the seating of China in the United Nations. I hope that China's own actions will not have made this task more difficult.—[Vol. 745, c. 269.] [Interruption.]

Mr. Molloy: Is my hon. Friend aware that time is running out—[Laughter.] Yes, it is; I should have thought that the fright the world had last week showed that.—[Interruption.] Does my hon. Friend accept that the evil situation still extant in Vietnam has grave dangers of escalation and it would, therefore, be sensible for our Government now to give a lead in recognising reality and acknowledging that the Republic of China exists and should take its seat in all responsible councils of the world?

Mr. Rodgers: We have acknowledged for a long time that it exists, and, as I said in my original Answer, we shall continue to do all we can to make sure that China is seated at the United Nations. However, it is only right for me to add that, if we have obligations in this respect, China has obligations to us, particularly to our diplomats and others who have been put in an intolerable situation in the past few weeks.

Mr. G. Campbell: Have the Government any grounds for assuming that the Chinese Government would accept a place at the United Nations if it were now offered, especially if the Nationalist Government were still to remain there?

Mr. Rodgers: Clearly, there are problems here, and we cannot anticipate the attitude which China might adopt; but this should not affect our general policy on the main issue.

Committee of 24

Mr. Blaker: asked the Secretary of State for Foreign Affairs what is the policy of Her Majesty's Government regarding the United Nations Special Committee of 24.

Mr. George Thomson: The policy of Her Majesty's Government is to cooperate with the Committee of 24 as far as they can and seek the Committee's support for measures designed to promote the interests of the inhabitants of the territories concerned and where that support is not forthcoming to ensure that our policies of constitutional progress are adequately explained and where necessary defended.

Mr. Blaker: Is the Minister aware that the House will welcome the Government's decision not to take any further part in the deliberations of this Committee so far as concerns the West Indian associated States? Is a British representative currently a member of the Committee which is touring Africa and Asia?

Mr. Thomson: We have decided not to take part in the Committee's tour of Africa and Asia on the ground that these kind of deliberations can be more economically performed in New York. This would not preclude us taking part in any particular debate where we felt that our own interest was threatened.

BURMA (EXCHANGE CONTROL RESTRICTIONS)

Mr. Bob Brown: asked the Secretary of State for Foreign Affairs what further representations he has made to the Burmese Government about the delay in lifting exchange control restrictions to

enable British citizens who have spent years in the service of their country to withdraw their life savings.

Mr. William Rodgers: We are continuing to do all we can to persuade the Burmese Government to authorise remittances in these cases, and I have myself lately made representations to the Burmese Ambassador. Representations have also been made in Rangoon.

Mr. Brown: In view of the limited amount of exchange involved, and the disproportionate distress being caused to individuals, would not my hon. Friend agree that the attitude of the Burmese Government is parsimonious, to say the least?

Mr. Rodgers: I do not think I would chose to put it in those terms, but I agree that it ought to be possible to solve this problem without too much difficulty.

Dame Irene Ward: I am grateful that the hon. Gentleman is making representations, but may I ask him what results he has had from them? This, surely, is the point. When are we going to get a satisfactory answer from the Burmese Government? Is not there something that we can do to stimulate them?

Mr. Rodgers: It is precisely the point. We have made representations over a considerable period. I have made some again lately to the Ambassador, and I think that for the moment we must await a reply from him.

MONGOLIA (DELEGATION TO BRITAIN)

Mr. Bob Brown: asked the Secretary of State for Foreign Affairs what was the purpose of the recent official visit to Great Britain by a delegation from Mongolia.

Mr. William Rodgers: The delegation visited the United Kingdom as guests of the Foreign Office and the British Council. They negotiated a two-year programme of educational, cultural and scientific exchanges. The programme is on a modest scale but reflects our interest in gradually improving our relations with Mongolia.

KING FAISAL (VISIT)

Mr. Dewar: asked the Secretary of State for Foreign Affairs whether he will make a statement on his discussions with King Faisal during his visit to this country.

Mr. Moyle: asked the Secretary of State for Foreign Affairs if he will make a statement on discussions he has had with King Faisal of Saudi Arabia during the recent State visit.

Mr. Wall: asked the Secretary of State for Foreign Affairs if he will make a statement on his talks with the King of Saudi Arabia.

Mr. Stratton Mills: asked the Secretary of State for Foreign Affairs if he will make a statement on his discussions with King Faisal during his recent visit to the United Kingdom.

Mr. George Brown: My right hon. Friend the Prime Minister circulated a statement on these talks in reply to a Question from the hon. Gentleman the Member for Shrewsbury (Sir J. Langford-Holt) on 6th June. I have nothing to add to it.—[Vol. 747, c. 790–1.]

Mr. Dewar: Can my right hon. Friend tell the House whether it was indicated to the Prime Minister by the King of Saudi Arabia that he was prepared to support and guarantee a broadly based Administration for the South Arabian Federation, and if so, what limits he put on the definition of the term "broadly based"?

Mr. Brown: I am certain that the King of Saudi Arabia, like us and many others, would like to see a broadly based Government in South Arabia. I am certain that he would like to see it introduced as soon as possible. The King put no limit on this, neither do we. What we are trying to bring about is a Government whose composition includes all the various strains of South Arabian nationalism.

Mr. Moyle: Can my right hon. Friend tell the House whether His Majesty sought any undertakings from Her Majesty's Government about the military protection of the South Arabian Federation after independence, and whether any undertakings were offered?

Mr. Brown: I am sure that my hon. Friend understands that talks of this nature cannot go on unless they are regarded as confidential, but my hon. Friend would not be far away if he thought that some of these things were discussed.

Mr. Stratton Mills: Cannot the right hon. Gentleman go a little further? Did not King Faisal make it clear that in his view the policy of Her Majesty's Government in leaving the South Arabian Federation defenceless was total madness, and did he not emphasise the grave danger of external attack?

Mr. Brown: If I were to answer that question it would be a breach of the confidentiality of the talks.

Lord Balniel: Does not the right hon. Gentleman recollect that last week the Prime Minister said that King Faisal does not see eye to eye with the Government on the question of South Arabian policy? What is the difference? Does it lie in the fact that the Saudi Arabian Government are extremely concerned about the launching of the South Arabian Federation, on independence, without any proper security against external aggression?

Mr. Brown: There is no evidence that King Faisal of Saudi Arabia saw eye to eye with the last Government either. I have not the slightest intention of being drawn into a discussion of what passed between us in our talks.

PERSIAN GULF

Mr. Dewar: asked the Secretary of State for Foreign Affairs what is the purpose of a continuing British presence in the Persian Gulf.

Mr. Dickens: asked the Secretary of State for Foreign Affairs why a continued British military presence is required in the Persian Gulf.

Mr. George Brown: Our continued presence in the Persian Gulf is required to enable us to fulfil our remaining commitments in the area and to contribute to its stability.

Mr. Dewar: Does not my right hon. Friend agree, after consideration, that the present standing of France in the Middle East illustrates again that a physical military presence in that area does not


necessarily lead to good relations with Middle East countries?

Mr. Brown: My hon. Friend will recognise that there are different interests and different situations, and I would urge him not to assume too easily that France or any other country has a greater interest than we have, but to keep very much in mind that we have considerable interests in the area.

Mr. Dickens: Will my right hon. Friend brace himself to receive a compliment from me, namely, is he aware of the widespread and sincere admiration felt in the House and in the country for the way in which he has handled the Middle East situation in the past week? Secondly, does not the Middle East war show, finally and conclusively, the utter futility and ineffectiveness of a British military presence east of Suez?

Mr. Brown: I found the first part of my hon. Friend's supplementary question most attractive. What he has hung on it in the second part I am not sure about. I will think about it.

Mr. James Davidson: Can the Foreign Secretary tell us what these commitments in the Persian Gulf are, especially in view of the fact that although we have British forces there, three of our main sources of oil in the area—Kuwait, Saudi Arabia and Iraq—have been closed to us as a result of the recent crisis, leaving us with only two? The other commitments, so far as I know, date back to the treaty of 1856, to prevent slave running in the Gulf. What are our other commitments in the Gulf?

Mr. Brown: We have commitments to protect and co-operate with States in the area. On the question of oil supplies, this is a particularly delicate moment. It would be wiser if I did not comment on what has happened.

Mr. Dodds-Parker: Has the right hon. Gentleman studied the apparent success of the French in backing one side and selling aircraft to the other?

Mr. Ogden: Does not my right hon. Friend agree that the States of the Persian Gulf have commitments to this country, as well as our having commitments to them? What efforts are being made by Her Majesty's Government to encourage those States to fulfil their commitments to us?

Mr. Brown: My hon. Friend has made a wise and important point. He may be assured that I am drawing this to the attention of everybody concerned.

Mr. Sandys: Does not the Foreign Secretary realise that once we have broken our commitments and withdrawn our protection from South Arabia it will be politically and militarily almost impossible to hang on in the Persian Gulf?

Mr. Brown: Having made the mess he did in the past, I think the right hon. Gentleman would be well advised to await the statement that I intend to make next week.

SOUTH ARABIA (CONSTITUTION)

Mr. Evelyn King: asked the Secretary of State for Foreign Affairs what progress has been made in the drafting of the new constitution for the Federation of South Arabia; and if he will make a statement.

Mr. George Brown: The constitutional proposals prepared by the Federal Government before the visit of the United Nations Mission have been under discussion but no conclusion has yet been reached and I am not at present able to give details.

Mr. King: Does the right hon. Gentleman accept, first, that these consultations have been going on for a long time, and will he use his influence to speed them up, because they are of the utmost consequence? Secondly, will he seek to use what influence he has to see that they result in a First Minister or Prime Minister emerging as the head of the Federation who might act as a focus of loyalty, rather than a rotating chairman going on from month to month?

Mr. Brown: The hon. Member has a very good point. I think that he will find that when I make the statement that I have promised to the House next week I will cover it.

NUCLEAR WEAPONS

Mr. Marten: asked the Secretary of State for Foreign Affairs if he will make a statement on progress towards internationalising Great Britain's nuclear deterrent.

Mr. Blaker: asked the Secretary of State for Foreign Affairs to what extent the Nassau Agreement of December, 1962, remains in force.

Sir T. Beamish: asked the Secretary of State for Foreign Affairs what proportion of the United Kingdom's nuclear strike capacity is assigned to the North Atlantic Treaty Organisation, the Central Treaty Organisation and the South-East Asia Treaty Organisation; and to what extent Her Majesty's Government retains the right claimed at the Bahamas meeting in December, 1962, to withdraw such forces should supreme national interests be at stake.

The Minister of State for Foreign Affairs (Mr. Frederick Mulley): Our nuclear weapons are already internationalised to the extent that the V-bombers are assigned to the North Atlantic Treaty Organisation and targeted in accordance with North Atlantic Treaty Organisation requirements. Similar arrangements are envisaged for the Polaris force when it becomes operational. Certain of our aircraft with a nuclear capability are declared to the Central Treaty Organisation and to the South East Asia Treaty Organisation.
Although, as my right hon. Friend the Defence Secretary has said, we can conceive of no situation where it would make sense for this country alone to use these weapons, the right to use our strategic nuclear forces independently continues if our supreme national interests are at stake.

Mr. Marten: In other words, the situation is exactly the same as it was and has been for the last two and a half years? Is this not entirely against what the Labour Party said during the election?

Mr. Mulley: On the contrary, we shall continue to consider ways of internationalising our nuclear forces. We have already made considerable progress in this direction by joint targeting arrangements, and by the new N.A.T.O. nuclear consultative machinery which, as the House knows, has been the priority in N.A.T.O. in the last years.

Mr. Blaker: Since the Government have now made it clear that British Polaris submarines will be assigned to

N.A.T.O. on terms which will permit of their being withdrawn, will it, after all, be necessary to renegotiate the Nassau Agreement and, if so why?

Mr. Mulley: As I have already said, the priority in N.A.T.O., a priority which the Government support, has been to establish collective consultative and planning machinery. When this is working properly, the other question raised by the hon. Member will no doubt be further considered.

Mr. Philip Noel-Baker: In view of the very dangerous crises which the arms race is continually bringing, are the Government still considering methods of abolishing all nuclear stocks?

Mr. Mulley: This has been the Government's objective and, as my right hon. Friend knows, we have put forward proposals for general and complete disarmament. I hope that the non-proliferation treaty in Geneva will come along as an important step in that direction.

Lord Balniel: Am I not right in remembering that the first priority in the defence policy of hon. Gentlemen opposite was to renegotiate the Nassau Agreement?

Mr. Mulley: I have no recollection of that. [HON. MEMBERS: "Oh."]

Mr. William Hamilton: Would my right hon. Friend say whether he conceives of any possible circumstances in which we would "go it alone" with nuclear weapons?

Mr. Mulley: I can conceive of no such circumstances and in my original Answer that was exactly what I said.

Mr. Marten: In view of the unsatisfactory nature of that reply, I beg to give notice that I shall seek leave to raise this matter on the Adjournment at the earliest opportunity.

Mr. Alexander W. Lyon: asked the Secretary of State for Foreign Affairs whether he will make a statement on the progress towards a non-proliferation agreement.

Mr. Luard: asked the Secretary of State for Foreign Affairs whether, in view of the difficulties that have arisen over the conclusion of a non-proliferation treaty, Her Majesty's Government will offer to open British non-military nuclear


establishments to international inspection on the same basis as is proposed for non-nuclear powers.

Mr. A. Royle: asked the Secretary of State for Foreign Affairs what progress has been made towards an agreement on a treaty banning the proliferation of nuclear weapons.

Mr. Mulley: I explained on 5th June the efforts that we are making to get an agreed draft non-proliferation treaty tabled at Geneva. Recent events in the Middle East have underlined the need to negotiate the treaty as quickly as possible.—[Vol. 747, c. 100.]

Mr. Lyon: While agreeing emphatically with the final sentiments of that Answer, may I ask my right hon. Friend whether he is preparing now to take a new initiative to allay the suspicions of those Powers who are concerned about conveying their secrets to an inspectorate in relation to non-military nuclear installations? What is being done about this by the British Government?

Mr. Mulley: I am sure that it is right that we ensure that civil use of nuclear power is in no way impeded by such a treaty but, until a draft treaty is tabled by the co-Chairmen of the 18-Nations Disarmament Committee, it is not possible to discuss in a wider circle the point raised by my hon. Friend. I hope that this draft treaty will be tabled very shortly.

Mr. Luard: May I ask the right hon. Gentleman to answer Question No. 37, as he has not yet done so? Can he say whether the Government are prepared to make an offer of opening nuclear installations to the same kind of international inspection that the non-nuclear Governments are being asked to accept, as a means of overcoming some of the objections which have been raised by the West German and other Governments on this point?

Mr. Mulley: As my right hon. Friend the Foreign Secretary said on 17th April, we are considering what we can do regarding safeguards of our peaceful nuclear facilities. I can give my hon. Friend the assurance that we will bear in mind the point that he has made.

Mr. Lubbock: What proposals are being made by the Government regarding

the sale of enriched uranium to non-nuclear Powers for civil purposes, in order to be absolutely certain that they are not subsequently used for military purposes?

Mr. Mulley: This question is one of the matters that cannot be very fruitfully pursued until we get a draft treaty tabled. This is the most urgent thing that we can do in this direction.

Mr. Frank Allaun: To overcome the objections of certain, at present non-nuclear Powers, will the Government consider, if not unconditional relinquishment of the British nuclear bomb, at least giving it up in return for these Powers signing the pact?

Mr. Mulley: It is a little premature to go as far as that before we actually have a draft treaty. In the present situation, I do not think that a unilateral act of that kind on our part would assist.

Lord Balniel: How does this draft agreement differ from the draft agreement under discussion in 1963 with the United States Government?

Mr. Mulley: The treaty which is under discussion between the American and Soviet Union Governments has not yet been published, so it is difficult to say in what respects it will differ, but it will differ on a number of important points.

Sir Alec Douglas-Home: Is not that strange? Did not the Prime Minister tell me that he had searched all the pigeonholes in the Foreign Office for this draft left by the last Government in 1963 and could not find it? How does he know that it differs?

Hon. Members: Answer.

Mr. Mulley: We are dealing with a rather hypothetical situation until we have a draft treaty at Geneva.

ACCIDENTS AT SEA (INTERNATIONAL LAW)

Mr. Alexander W. Lyon: asked the Secretary of State for Foreign Affairs what progress has been made following the "Torrey Canyon" incident in the review of international law relating to accidents at sea.

Mr. Mulley: A legal committee was established at the Inter-Governmental Maritime Consultative Organisation Special Meeting of the Council on 4th and 5th May. It will meet on 21st and 22nd June to begin consideration of international legal problems arising out of the "Torrey Canyon" disaster.

Mr. Lyon: What proposals is my right hon. Friend considering putting before this Committee to deal with the twin problems of compensation for disasters of this kind—compensation which must be shared between all the maritime Powers—and trying to prevent such accidents by ordering the sea-lanes in a better way than is possible at the moment?

Mr. Mulley: There are many other points as well as the two important ones mentioned by my hon. Friend. It is an extremely complex legal problem and, rather than trespass upon the time of the House now, I will place in the Library the full text of all the 18 points that the Government have submitted to this Committee.

Sir Knox Cunningham: Will the right hon. Gentleman consider some arrangement by the maritime States whereby they would guarantee a fund to meet similar types of disaster which occur on the High Seas, without any particular liability upon the ship or the owners?

Mr. Mulley: This is certainly a point which can be considered, and I assure the hon. and learned Gentleman that all relevant points will be put by us before the Committee. It is a very complicated legal question, as he knows, and it will take time for them to be processed by this international body.

Dr. John Dunwoody: Would my right hon. Friend accept that many people in the South-West consider that progress should be very rapidly made, because we are concerned with the ever-present risk of a disaster similar to that of the Torrey Canyon occurring on our shores in the months ahead?

Mr. Mulley: I am grateful to my hon. Friend for stressing the urgency, and I can assure him that the Government will do all that they can to press matters forward. It would be unrealistic to expect

a very rapid solution to the very many intricate matters involved.

Mr. Geoffrey Wilson: Can the right hon. Gentleman tell me whether the 18 points to which he has referred include any reference to the provisions for the navigability of large tankers?

Mr. Mulley: These matters are among the points, but, rather than go into the long list now, I hope that the hon. Member will consult the text in the Library.

BRITISH ATLANTIC COLLEGE

Mr. Alan Lee Williams: asked the Secretary of State for Foreign Affairs what funds and personnel are made available by Her Majesty's Government to the British Atlantic College.

Mr. William Rodgers: The grant given to the Atlantic College for the year 196667 was the final one and no personnel have been made available to the College.

Mr. Williams: Would my hon. Friend agree that the amount of money that Her Majesty's Government spend on the Atlantic College, which I in no way wish to disparage, is in sharp contrast to the amount of money that official sources give to the Council for Education in World Citizenship? Would my hon. Friend be prepared to look at this matter to see whether a larger grant could be given to the C.E.W.C. which receives only £950?

Mr. Rodgers: I am not sure that the comparison is as exact as my hon. Friend implies, but I will certainly look at the matter as a whole, though I should point out that responsibility for the Council for Education in World Citizenship is that of my right hon. Friend the Secretary of State for Education and Science.

GREECE (BRITISH SUBJECTS)

Mr. Rose: asked the Secretary of State for Foreign Affairs (1) what action he is taking to safeguard the interests of British subjects arrested and detained by the new military Government in Greece;

(2) whether he will make a statement on the whereabout of Mrs. Betty


Ambatielos, arrested by the military Government in Greece.

Mr. William Hamilton: asked the Secretary of State for Foreign Affairs what efforts have been made to secure the release of British-born subjects imprisoned by the new regime in Greece; and with what results.

Mr. William Rodgers: The only British subjects arrested following the recent Greek coup were Mrs. Betty Ambatielos and two brothers named Olympios. Repeated representations to the Greek authorities were made on their behalf by our Embassy in Athens. The Olympios brothers were released and expelled from Greece on 6th May, and Mrs. Ambatielos on 27th May. To the best of my knowledge, all three are at present in this country.

Mr. Rose: My hon. Friend's efforts in this regard are greatly appreciated, but will he use his influence in N.A.T.O. and elsewhere to see that we have a speedy end to the military régime in Greece and a return to constitutional rule, and will he use his good offices on behalf of those thousands of Greeks still in prison without trial who have not had the benefit of his intervention?

Mr. Rodgers: I appreciate my hon. Friend's first observation, and I shall pass on his message to our Embassy in Athens, which did a lot of work in this respect. His supplementary question raises larger issues. We must always be concerned to try to get the best result we can in all the circumstances, and sometimes the more obvious way is not the best way to achieve it.

Mr. Hamilton: Why were these people detained in the first place, and have any proposals been made by Her Majesty's Government for compensation for them?

Mr. Rodgers: They were detained by the Greek Government for security reasons. I do not think that the question of compensation arises, but I will look into it.

Mr. Mawby: Will the hon. Gentleman consult his hon. Friend the Member for Swindon (Mr. Francis Noel-Baker) before finally making up his mind on this question?

Mr. Ian Lloyd: Could the hon. Gentleman widen his answer on this subject and give some reassurance that Her Majesty's Government have a general and convincing policy for dealing with questions of this kind wherever and whenever they arise? May I draw his attention particularly to the plight of British subjects at the moment marooned on five British ships in the Bitter Lakes?

Mr. Rodgers: The hon. Gentleman may certainly draw that to my attention, and I shall look into it. In general, we have very satisfactory arrangements and, when British subjects get into difficulties abroad, for whatever reason, prompt and effective action is taken.

Dr. David Owen: Will my hon. Friend take it that, while many of us are grateful for the individual diplomatic initiatives which are taken, we feel that condemnation of this régime by the Government has been inadequate? With the sole exception of what has been said by the Lord President of the Council, we have not heard an outright condemnation of the regime, and we should like the Government to consider doing this at frequent intervals.

Mr. Rodgers: The Government very well understand the mood of the House in this respect.

OVERSEAS INFORMATION (BEELEY REPORT)

Dr. Ernest A. Davies: asked the Secretary of State for Foreign Affairs whether he will make a statement on the Beeley Report.

Mr. Boston: asked the Secretary of State for Foreign Affairs if he will make a statement about the progress of the inquiry by Sir Harold Beeley into Great Britain's overseas information services.

Mr. Eldon Griffiths: asked the Secretary of State for Foreign Affairs if he will publish the Beeley Report.

Mr. Tilney: asked the Secretary of State for Foreign Affairs whether Sir Harold Beeley's review of overseas information will be published: and whether this covers the possibility of setting up a British Council office in the Philippine Republic.

Mr. William Rodgers: Sir Harold Beeley's Report is now under consideration. We are discussing how the welcome interest of hon. Members and the general public in this Report can most suitably be met. In the meantime, it would hardly be appropriate for me to discuss the contents.

Dr. Davies: I thank my hon. Friend for that reply, but, as this Report deals generally with our information services and related matters, a subject of great concern to the House, it being increasingly necessary that Britain's voice be heard in the world not only on cultural subjects but also in support of our export drive, ought we not to have an opportunity to discuss its contents when the Report is presented?

Mr. Rodgers: We have this in mind, and I am sure that the point will have been noted by my right hon. Friend the Lord President of the Council.

Mr. Boston: When will the Report be published? Second, can my hon. Friend say to what extent overseas broadcasting has been taken into account in the review, especially the need to increase output in the Far East services? In view of the considerable interest on both sides of the House in the need to improve overseas information services, will my hon. Friend take it that we should like a debate at an early opportunity?

Mr. Rodgers: I cannot give the date when the Report will be available for publication. The question of a debate has already been noted. There are many claimants of different kinds for expanded overseas information services. For services in the Far East as well as in the Middle East, the B.B.C. would be an obvious candidate which ought to be taken into account.

Lord Balniel: While we should welcome a debate on this Report later on, perhaps the hon. Gentleman would explain at this stage why broadcasts in Arabic were reduced earlier this year from 84 hours a week to 70 hours a week?

Mr. Rodgers: It is essential that, at all times, we should look at our overseas information services both to ensure proper continuity and to take account of our limited resources and the priorities

as we see them. We try to make the best judgment possible in all the circumstances.

LATIN AMERICA (NUCLEAR-FREE ZONE)

Mr. Luard: asked the Secretary of State for Foreign Affairs whether Her Majesty's Government propose to ratify the two protocols to the agreement for a nuclear-free zone in Latin America.

Mr. Mulley: We welcome the efforts of the Latin American states to prohibit nuclear weapons from their territories and we are studying the text of the Treaty. We hope that we shall be able to associate ourselves with it by signing and ratifying the two Protocols.

Mr. Luard: Does my right hon. Friend agree that, in view of the difficulties that have faced the non-proliferation treaty in Geneva, one of the most effective ways of helping to prevent the spread of nuclear weapons is by assisting and promoting non-nuclear zone agreements of this type?

Mr. Mulley: I agree that non-nuclear zone agreements are very helpful, but I hope that my hon. Friend is not suggesting that they are a substitute for the general non-proliferation treaty, to the attainment of which we are working very hard.

Mr. Dodds-Parker: Will these agreements cover British still-dependent territories in the Caribbean?

Mr. Mulley: It is intended that all states within Latin America, including dependent territories, will be covered, and it will be on that basis that we should sign one of the protocols.

ANGLO-SOVIET CONSULTATIVE COMMITTEE

Mr. Coe: asked the Secretary of State for Foreign Affairs when he expects to announce the membership of the British side of the new Anglo-Soviet Consultative Committee.

Mr. George Brown: I spoke to the Soviet Government about the Committee during my visit to Moscow. They gave me their proposals for the Committee's terms of reference in reply to the suggestions we put to them earlier. As soon as


the terms of reference are settled, I intend to approach people to serve on the British Group of the Committee.

Mr. Coe: I thank my right hon. Friend for that reply, but may I urge on him the need to push this ahead as quickly as possible? To whom will the Consultative Committee report when it comes to its conclusions on various aspects of Anglo-Soviet co-operation, in view of the wide nature of the subjects covered by the Committee?

Mr. Brown: I am very well aware of the need and very keen that we should push it ahead as fast as we can, because I think that it will help the relationships of both countries with each other. Each side of the Committee will, of course, report to its own Government.

Mr. Marten: Are not quite a number of matters in the communiqué going rather slowly? Does the Foreign Secretary recall that the Prime Minister said that we must keep up the momentum? Does not that rather glossy communiqué now look a bit tarnished?

Mr. Brown: The hon. Gentleman is quite wrong. Quite a lot is happening and is happening rather quickly. My right hon. Friend the Minister of Health is off today to deal with one part of it. What we have to do is to ensure that each part comes to fruition in a form which can then carry us to the next stage of the journey, and that we are doing.

U.S.S.R. (MR. GERALD BROOKE)

Mr. Winnick: asked the Secretary of State for Foreign Affairs what further proposal he has made to the Russian authorities over the Gerald Brooke case.

Mr. William Rodgers: My right hon. Friend pressed the Soviet Government very hard about Mr. Brooke during his visit to Moscow, but I regret that there was no change in the Soviet position.

Mr. Winnick: The House will be pleased with what my right hon. Friend the Foreign Secretary has done, but are the Russians aware of the feelings of right hon. and hon. Members on this issue? Do they appreciate that in a Parliamentary democracy like ours it is

not unusual to be concerned about a single individual, even if he is, perhaps, a misguided individual?

Mr. Rodgers: I am sure that the Russians will be aware and will be made more aware by the interest taken by my hon. Friend.

Sir Alec Douglas-Home: Does the hon. Gentleman realise that this is really most uncivilised behaviour on the part of the Russian Government, that it is a very serious matter of which the House should take note? How often has Mr. Brooke been visited by the Consul? Is it the case that he has been visited only once in nine months or once a year?

Mr. Rodgers: Mr. Brooke was last seen by the Consul in December. We have left the Russians in no doubt about the serious view we take about this and, of course, we are anxious that he should be seen as often as possible. It is right that the House should express its view in these terms, and we shall certainly convey them to the Soviet authorities.

Mr. A. Royle: What action does the hon. Gentleman propose to take now? Is he aware that when the Foreign Secretary returned from Moscow after his last visit he indicated to the House that he had succeeded in obtaining some sort of relaxation in the conditions under which Mr. Brooke was living? What action has been taken—none?

Mr. Rodgers: There was some relaxation, as my right hon. Friend told the House. [HON. MEMBERS: "What?"] The question relates to what happened on my right hon. Friend's recent visit. We are still pressing very hard and will do all we possibly can to make sure that Mr. Brooke's conditions are improved, but at the end of the day as long as he is held by the Soviet authorities the most we can do is to make representations and convey to the Soviet Government how seriously we regard his detention and its circumstances.

Sir R. Cary: Without straining Russian prison regulations too much, is Mr. Brooke being allowed to receive a limited number of parcels?

Mr. Rodgers: Yes, Sir.

SOUTH-EAST ASIA

Mr. Gardner: asked the Secretary of State for Foreign Affairs whether he will take the necessary steps to ensure the continuation of friendly relationships between Great Britain and the countries of South-East Asia, with a view in particular to the growth of mutual trade in a period during which the British military presence will be reduced.

Mr. William Rodgers: A reduction of our military strength in the Far East need not affect our friendly relations with the countries of South-East Asia and we shall certainly do all we can to develop our trading and other relationships to our mutual benefit.

Mr. Gardner: Will my hon. Friend accept that the withdrawal from Singapore as quickly as possible will be welcomed, at any rate by a good many hon. Members on this side of the House? But will he ensure that any additional assistance in developments taking place should be phased to fit in with that withdrawal so that we do not face another Malta situation?

Mr. Rodgers: That raises a more specific question than is dealt with in the original question, but we certainly have very much in mind the point made by my hon. Friend.

Mr. Gardner: asked the Secretary of State for Foreign Affairs what steps he has in mind for encouraging the establishment of regional organisations for economic and social co-operation in South-East Asia, and, in particular, as regards those countries which have a close association with Great Britain.

Mr. William Rodgers: Her Majesty's Government warmly welcome the interest now being shown by the countries of South-East Asia in the possibilities for regional co-operation. But we believe that the form of this co-operation, and the establishment of new organisations to promote it, are matters which the Asian peoples must decide for themselves.

Mr. Gardner: While I accept my hon. Friend's point, does he not think that the time has come for a new United Nations initiative in this kind of organisations' development, and will he seek to

initiate discussions with other United Nations members on it?

Mr. Rodgers: I quite agree that the interests of the United Nations must be maintained and, in so far as we can take a useful initiative here, we shall look into it, but the fact still remains that the countries of South-East Asia, with all their problems and ancient rivalries, must find ways of coming together in a way which is mutually acceptable.

MINISTER OF STATE FOR FOREIGN AFFAIRS (OVERSEAS VISITS)

Mr. A. Royle: asked the Secretary of State for Foreign Affairs what is the total cost to public funds incurred by overseas visits carried out since October 1964 by the Minister of State, Lord Chalfont.

Mr. George Brown: For the period from October 1964 to September 1966, I would refer the hon. Gentleman to the reply given by my hon. Friend the then Minister of State the Member for Flint, East (Mrs. White) to my hon. Friend the Member for West Ham, North (Mr. Arthur Lewis) on 1st November, 1966. From October 1966, total costs of about £5,740 have been incurred by the many missions my right hon. and noble Friend has led so well.—[Vol. 735, c. 71.]

Mr. Royle: In view of the total failure of Lord Chalfont to achieve anything over the past 2½ years, why is he now being sent to Brussels? Is it a shabby party political manoeuvre at the expense of his right hon. Friend the Member for Sheffield, Park (Mr. Mulley), in order to calm down the opponents of the application to join Europe on his back benches?

Mr. Brown: That well-written supplementary question seems neither relevant to the Question on the Order Paper nor worthy of the hon. Gentleman.

PASSPORTS

Mr. Gwilym Roberts: asked the Secretary of State for Foreign Affairs whether he is aware of the anomaly whereby female travellers cannot travel singly on a passport in the name of the


husband and wife; and if he will take steps to provide a dual passport which can be used by either husband or wife singly.

Mr. William Rodgers: Yes, Sir. This arises from a recommendation of the Geneva Passport Conference of 1926, which is still in force internationally. It would be wrong for the United Kingdom to change the rule unilaterally, since British wives travelling alone on joint passports could then run into difficulties abroad, owing to other countries not recognising their passports as valid in the absence of their husbands.

Mr. Roberts: Would my hon. Friend not agree with me that this is a matter not of an extra 30s. for a passport but of the treatment of the wife as a sovereign citizen and not merely part of the husband's chattels?

Dame Irene Ward: Is not this a ridiculous situation, and did not the Minister give a ridiculous answer? Will the hon. Gentleman reconsider it? Cannot the House make representations in the hope that some sensible recognition will be taken in this kind of connection? The whole thing is absolutely idiotic.

Mr. Rodgers: I fully understand the sentiments expressed by my hon. Friend and the hon. Lady, but this is a matter in which we must have reciprocity or we shall not gain the advantage—[Laughter.]—by which I mean that Members of this House will not gain the advantage which would come from reciprocity.

Mrs. Lena Jeger: Will my hon. Friend try to press in the discussions for the complete abolition of joint passports? Surely it is an absurd anachronism for any woman to be on any man's passport?

Several Hon. Members: rose—

Mr. Speaker: I think it is fortunate that Question Time has run out.

Orders of the Day — FINANCE (No. 2) BILL

Further considered in Committee [Progress, 8th June].

[Mr. SYDNEY IRVING in the Chair]

Clause 25.—(CONVEYANCES AND TRANSFERS ON SALE: REDUCTION OF DUTY, AND AMENDMENT OF PROVISIONS FOR EXEMPTION.)

3.33 p.m.

Mr. John Hall: I beg to move Amendment 175, in page 31, line 36, at the end to add:
Provided that the foregoing provisions of this subsection shall only apply where—

(a) the body from which the interest was transferred (the transferor company) was beneficial owner of not less than ninety per cent. of the issued share capital of the body to which the interest was transferred (the transferee company) or where a third body corporate was beneficial owner of not less than ninety per cent. of the issued share capital of each, and
(b) the transferor company and the transferee company have ceased to be associated by reason only of the transferor company or the third body corporate ceasing to be beneficial owner as aforesaid, and have not so ceased by reason of the liquidation of the transferor company.
For the purpose of paragraph (a) above any share capital of the transferee company owned by the said third body through the transferor company shall not be taken into account in calculating the amount of share capital owned by the third body in the transferee company.
From the point of view of audience rating I suppose that this is the best spot in the daily programme of Parliament, but I am afraid that the series of Amendments now to be discussed arc rather technical and lack popular appeal. In moving this Amendment I cannot hope to match the atmosphere of screaming farce which marks Government replies in debates on S.E.T., nor can I hope to rival the Chief Secretary's colourful and imaginative accounts of the terrible tax that lurk beyond our shores. Nevertheless, I believe that this Amendment and the Amendments which follow are not unimportant, because they will, if nothing else, clarify certain obscurities about the stamp duty Clauses as they are at present worded.
Clause 25 is primarily a relieving Clause. I do not want to be accused of looking a gift Clause in the paragraphs, but subsection (4), as now worded, seems to attack innocent transactions where the assets transferred continue to be at least 90 per cent. group owned. The Amendment is designed to provide that the loss of exemption shall arise only where it is the transferee company which ceases to be within the group; that is, the liability to duty arises only if the assets leave the group. Under the present law it is possible in certain circumstances for assets to be transferred within various companies in such a way that duty is avoided. I hope that this Amendment as drafted will meet this point, and I hope, also, that it meets the point of relieving the penalisation of otherwise innocent transactions.
It is because I believe the Amendment to be fully justified that I move it with complete confidence that the Government will see this point of view and be prepared to accept it.

The Financial Secretary to the Treasury (Mr. Niall MacDermot): I am grateful to the hon. Member for Wycombe (Mr. John Hall) for the brevity with which he has moved the Amendment, because we have a heavy programme ahead of us. I shall try to meet him with equal brevity. I can assure him that we take his point here and think that something should be done to improve the Clause.
Subsection (4) counters the device under which relief from transfer duty in respect of transfers within a group of companies can be obtained for a transfer paid for, in effect, by a person outside the group and forming part of an arrangement under which one of the companies leaves the group. It has been represented to us—the hon. Gentleman has put the argument—that the solution that we have sought to this problem may hit at innocent transactions. I need not go into the details of it.
I am afraid that what is proposed in the Amendment does not meet this point. Clause 25(4) depends on the conception of a group consisting of the transferor and transferee companies, and if the transferor leaves the group there is no longer a group for the subsection to fasten

on to and it no longer gives any protection against avoidance. So we think that we shall need to try to attack the problem in a different way. This may mean that a new Ways and Means Resolution will be required and possibly even recommittal of the Bill, but no doubt, with cooperation, this need not provide any very great hurdles.
We have in mind a provision on the lines of strengthening the existing anti-avoidance provisions of Section 50 of the Finance Act, 1958. This will have some disadvantages in lacking precision, but as we cannot meet the point by amending Clause 25(4) without opening the door to avoidance we think that these disadvantages will have to be accepted.
If the hon. Gentleman will be willing to withdraw his Amendment, I can assure him that we will look at this and bring forward later the best means we can of meeting the point.

Mr. John Hall: I am sure that the Committee is grateful to the hon. and learned Gentleman for the way in which he has received the Amendment. When I moved it I thought that the logic and reason of it were such that it would impress the Government benches, as it has done. I hope that the hon. and learned Gentleman will be equally receptive to some of the other Amendments that we shall be moving later. However, in view of what he has said, it is with much pleasure that I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause stand part of the Bill.

Mr. John Smith: I shall not detain the Committee for long, but I think that this Clause needs a bit of examination as a whole. I do not think that subsection (1) goes nearly far enough. It is to be welcomed as a step towards the eventual final abolition of stamp duty, which is an obsolete and damaging tax. It is even older than the Inland Revenue. It was introduced at a time when nobody could think of anything workable which was better.
It is now a very complicated tax, and subsection (2) is evidence of that. It is very uneven in its incidence: if one buys a factory manufacturing goods for export


one pays the tax; if one buys a Rubens one does not. It is often not very difficult to avoid the tax. It represents well under 1 per cent. of the revenue of the country and takes a whole department, not necessarily the largest department, of the Inland Revenue to deal with it. It costs over twice as much, pound for pound, as Customs and Excise duties, and I feel that it is a direct obstacle to the process of saving and investment which we all want to encourage.
I say that simply by way of introduction, because we are here dealing with the tax as it affects property conveyances. After the passage of the Bill this Clause as it affects property conveyances may perhaps raise £15 million in this way. I question whether this is the best way for the country of raising this money.
Assessing stamp duty on property can be very complicated. In 1965–66, I notice, over 10,000 valuations had to be made and agreed in respect of gifts of property alone, and, as the Committee knows, valuations of property engage the time both on the Government side, the Inland Revenue side, and the public's side, of very skilled and valuable people indeed, all of whom are now badly needed to argue about the Land Commission; and all this is for 1 per cent. tax; that is, one decimal penny in the pound.
This argument can take 12 months, or even more if the matter goes to court. This is extremely costly. It is costly to the economy. We all know the costs of leaving a site vacant whether it be for Government offices or commercial premises, but sometimes the cost is even greater than we realise, in that not only is the owner not getting a return on his money, but is paying ground rent as well. The highly-trained and important people on both sides, important people in the officies at Worthing, are simply lost to the country by this process just as much as if they had gone down the brain drain.
This cost to the economy is greater, in my view, now, because whereas in the past the adjudicator of stamp duty was always arguing for the value of property to be put up, and the people on the other side were arguing for it to be put down, very often the Stamp Duty Office is now arguing to get the value of property reduced and the owners are arguing for it to be put up because of the incidence

of Capital Gains Tax, and this makes matters more confused.
I have here, as usual, a letter from one of my constituents which is a very fair sample. He got into trouble with the Stamp Duty Office over "submission to the Adjudication Department of the Stamp Duty Office of Orders of the Court approving schemes for the variation of trusts". I went into this and there is an amount of work involved in this particular type of adjudication procedure that is very great indeed.
The £15 million, which is what this tax will raise in the form set out is, of course, very agreeable for the Inland Revenue, and, of course, it pays the Revenue to collect it; but I very much doubt whether it pays the economy of the country as a whole. There are, of course, far more small transactions than large ones but the cost of levying a tax like this is not much more, except in cases which have to be adjudicated, for large transactions than it is for small ones. Therefore, the way to start cutting down this jungle is to raise the level of exemption.
It has been done a little this year, but I feel that subsection (1) does not go nearly far enough and that one simple way of improving it would be by this year exempting all property up to £7,000 which is the second figure mentioned.
I wonder what the point is of the complication of collection of a tax of a ½ of 1 per cent.—half a decimal penny per £—on a very narrow band of transactions. It is not as though the Chancellor were the Dame of Sark, who I understand, is able to levy a treizieme, which is, I suppose, something over 7½ per cent., but I wonder whether ½ a per cent. is really worth it.
The third point I want to make—

3.45 p.m.

Mr. Eric Lubbock: The Chancellor has one thing in common with the Dame of Sark, in that by his policies he is trying to drive motor vehicles off the road.

Mr. Smith: I yield to no one in my admiration for that gallant lady, who took such a magnificent stand in the war, but I do not wish to pursue her resemblances and differences to and from the Chancellor at this moment.
Further, if conveyances are to receive relief, why not mortgages? Presumably, the man who needs a mortgage to buy his house is in greater need of relief than the man who does not need a mortgage, and a point I have never seen made, is that a mortgage is most often secured by a life policy which itself attracts stamp duty, so that the man burdened with a mortgage pays three sets of duty while the laughably termed "rich" man, who does not need a mortgage, pays only one set. The stamp duty on small mortgages cannot possibly pay for its collection, and I urge the Chancellor to look at this.
If conveyances are to be relieved, will the Chancellor please consider the abolition of stamp duty on leases. This duty on leases raises something over £2 million a year, but it is raised from literally countless transactions. The average receipt must be tiny and this tax cannot possibly pay for its collection.
Finally, why has the Chancellor chosen the date of 1st August? I do not see why changes in stamp duty should not be able to take place forthwith like other changes in taxes. The transactions to be relieved will be held up to get reduced duty, and there will be a flood of business just after 1st August in the middle of the holiday season when solicitors and their staffs and even, indeed, the Controller of Stamps and his staff are trying to get a bit of a holiday. There will be a queue of clerks all trying to get things stamped and get off on their holidays, and that will add to the normal confusion of life, and the normal confusion in the office in Worthing. It will make a lot of trouble, I feel, which could be avoided by altering the date.
To sum up, stamp duty may pay the Revenue, but I do not think that it pays the country. I feel that in the end it ought to go; but a start should be made by abolishing stamp duty on leases and mortgages and on all but the very largest conveyances; and the Chancellor should amend this Clause on Report, to allow the Clause to take effect forthwith.

Mr. Raymond Gower: My hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith) has put forth reasonably and

fairly a powerful case for examination of the stamp duty system as it remains even after the improvements of recent years and in this Bill. I wish that he had put down an Amendment. It is not always the things which are put down in the first flush of enthusiasm which are necessarily the best. He has had valuable later thoughts about this and has called attention to something which should be closely examined.

Mr. MacDermot: But not now.

The Deputy Chairman (Mr. Sydney Irving): The hon. Member for Barry (Mr. Gower) is getting away from the Clause. We can only discuss the Clause as it stands.

Mr. Gower: The imperfections of the Clause have been effectively stated by my hon. Friend, Mr. Irving, and I shall not go further in emphasising the validity of the points he made.
I hope that the Financial Secretary paid attention to the comparison between the person who pays cash for a house or other property and the person who has to take out a mortgage. It seems senseless that the man who has to pay a mortgage is prejudiced not only in that sense, but also by having to pay stamp duty, whereas the man who can afford cash does not.
My hon. Friend also referred to the impact of the duty on a person buying what is not today a particularly expensive property. I have had experience of this in my professional career and I know that the person who buys such a property is usually stretched to the limit. When he finds himself called upon to pay the necessary legal costs, the last straw is the stamp duty. It is difficult to explain to him.
I hope that the Chancellor will give this serious consideration. Perhaps, as my hon. Friend has suggested, he will come forward with an Amendment on the Report stage. If the right hon. Gentleman cannot, I hope that he will take the point as being valid for the future. We should scrap most of the stamp duty system.

The Deputy Chairman: Order. We cannot have a general debate on stamp duty. This Clause makes changes on the margin and we can only discuss those changes.

Mr. Gower: I want to make bigger changes.

The Deputy Chairman: The hon. Gentleman cannot do it on this Clause.

Mr. Gower: I deeply regret, Mr. Irving, that we cannot do it on this Clause. I shall agree to the contents of the Clause with great reluctance and, within the rules of the House I shall consider how I can put down an Amendment to the Clause on Report.

Mr. Charles Fletcher-Cooke: Last year, I put down a Clause which, if added to the Finance Act, 1966, would have had the effect of abolishing stamp duty. It received no support from any one on either side. I raised this matter on the Second Reading of the Bill and again received no support. I am glad to see that today, out of the rules of order, support is growing for my view. Anything that in any way diminishes this ancient and barbaric tax will have my support.

The Deputy Chairman: Order. I am sorry to interrupt the hon. and learned Gentleman's campaign, but he is out of order.

Mr. Fletcher-Cooke: My argument is that of a moderate man, Mr. Irving, and I am prepared to support a Clause which diminishes the incidence of this barbaric and ancient tax even to the small extent that this great number of words purports to do.
Administering directly stamp duty involves about 170 civil servants—far too many. Apart from that, and perhaps increased by this Clause, are innumerable people, in accountants' offices and in private industry, who are concerned to administer this totally out-of-date tax. In so far as the Clause diminishes the tax, it must have our support.
As I pointed out on Second Reading, the tax was invented in the reign of William and Mary, when there were no Commissioners of Inland Revenue and no policing of the tax services at all. The only way of policing these matters was to rule that one could not produce a settled contract in court without having it properly stamped. I hope that you will agree, Mr. Irving, that the tax is out of date and not in keeping with the white hot, jet-propelled technological age in which we live.

The Deputy Chairman: Order. The hon. and learned Gentleman is now get-

ting into a general debate about administration. He can only discuss this Clause as it relates to the changes in the rates. He must now come back to order or resume his seat.

Mr. Fletcher-Cooke: My point, in getting into order, Mr. Irving, is that this Clause reduces the incidence of the duty and, therefore, I hope, the number of persons concerned with the levying of the tax. To that extent, I cannot imagine that anyone would oppose it. Now that we tax the cash flow through Income Tax and Capital Gains Tax and other methods that a modern and sophisticated economy has adopted, to that extent this duty should be diminished to what we are talking about now. I understand that this Amendment—

Mr. McDermot: What Amendment?

Mr. Fletcher-Cooke: I am referring to Amendment No. 175, moved so eloquently by my hon. Friend the Member for Wycombe (Mr. John Hall).

Mr. Deputy Chairman: Order. Can I help the hon. and learned Gentleman? We are discussing the Question, "That the Clause stand part of the Bill". We have disposed of Amendment No. 175.

Mr. Fletcher-Cooke: I understand that, in my temporary absence from the Chamber, Amendment No. 175 was withdrawn, but that was without my consent. I should not have allowed it to be withdrawn had I been here. It was an extremely good Amendment.

Mr. John Hall: It was withdrawn because the Government agreed to meet the point.

Mr. Lubbock: I am disappointed that your Ruling, Mr. Irving, and the information just given to the hon. and learned Member for Darwen (Mr. Fletcher-Cooke), interrupted a very valuable and informed speech to which I listened for some time without the feeling that I was being prevented from speaking myself—which is a feeling that I sometimes have in this Committee. I hope that the hon. and learned Gentleman will have the opportunity to return to the interesting discussion on some other occasion; but it is worth underlining a point and asking the Financial Secretary to reply.
As the hon. and learned Member for Darwen said, we are reducing to some


extent the incidence of the duty by raising the limits on which it operates. To that extent, also, the number of persons administering the tax will be reduced, just as the number of persons outside—accountants, solicitors and others—will be reduced. Thereby, the country will be saved money.
What was the proportion of the cost of the duty to total revenue before this change and what estimate has the Financial Secretary of the proportion afterwards? In looking at any tax, the Committee should examine it from the point of view of collection. The Income Tax system is fairly efficient because the number of people employed in administering it is quite small in relation to the volume of revenue collected.

4.0 p.m.

We all know—and it has been discussed on many previous Finance Bills—that the stamp duty is a highly inefficient tax. Therefore, if the hon. and learned Gentleman can show us that only a marginal improvement has been made in the proportion of cost to total revenue by raising the limit in this way, there will be strong argument for saying on another occasion—not now, because I do not want to incur your displeasure, Mr. Irving—that the tax should be removed altogether. That is as far as I want to go, but we should like these figures to make up our minds on this point.

The Clause is raising the value of houses on which this tax bites. I cannot remember the last occasion when these maxima were altered, but I would like to know whether the increase which is proposed has kept pace with alterations in the index of building costs during the intervening period. That is extremely important, because house prices in my constituency have gone up substantially in recent years.

The same is true of south-east England, and particularly of the Greater London area. In my constituency, one does not get much of a house for less than £7,000, astonishing as that may seem to some of my hon. Friends and hon. Gentlemen who represent constituencies in the north of England, where an equivalent house would cost half as much. We have to pay very heavily because of the pressure on accommodation in south-

east England. Therefore, it is important that the cost, which has been increasing, should be recognised in any alteration of the values on which stamp duties are assessed.

I should not be content if we went only as far as redressing the position which obtained before, because there is considerable pressure on the building industry. I was informed only last week that supplies of common bricks have completely dried up. That is a complete transformation in a few weeks from large surpluses all over the country to shortages. That, again, will affect the price of houses. It is astonishing how rapidly the situation can change in the building industry from one of slackness to a serious over-pressure which will inflate prices.

Therefore, I hope that the hon. and learned Gentleman will be able to convince me that we are not only keeping pace with the changing value of the cost of houses since the limits were last revised, but that, in setting the new limits, he has fully taken into account the likely increase in building prices which we will see over the next few years.

Mr. John Hall: As so often happens in this Committee, this interesting debate has arisen rather unexpectedly. We are indebted to my hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith) for raising the point about stamp duties in general. Although an Amendment has not been tabled, I am sure that this is something that the Financial Secretary will consider very carefully and that, possibly, the words of my hon. Friend and, indeed, those of the hon. Member for Orpington (Mr. Lubbock), may fall on receptive ears and that, on Report, we might find that stamp duty may be abolished. That is perhaps expressing too high a hope, but, nevertheless, this has been a very useful if short, debate.
I want to raise a rather different point. As I understand the situation under the present legislation, capital duty and transfer duty rights operate on mergers and takeovers when the consideration is more than 90 per cent. in shares, provided that the bidding company is acquiring not less than 90 per cent. of the capital of the company to be acquired. The point I wish to raise follows from this, and I


hope the Financial Secretary will consider and perhaps do something about it on Report.
The situation, as I have outlined it, means that should company A own more than 10 per cent. of company B, and then decide to merge completely, even though the whole of the transaction may be in shares there is no relief for either capital duty or transfer duty. This generally results in a scheme being undertaken under Section 206, which seems to avoid transfer duty rather than a straightforward operation under Section 209 of the Companies Act.
There appears to be no logical reason—I am sure that the Financial Secretary will agree—why, if these reliefs were intended to apply to mergers of companies, they should be forfeited in the event that one company happens to have an investment in the other. There is a strong logical argument for introducing legislation so that, provided the operation is designed to result in total ownership and the consideration is not less than 90 per cent. in shares, then, regardless of the interest the acquiring company may have to start with, similar relief should apply.
I only mention this on the Question now before Committee so that the Financial Secretary might consider it and perhaps do something on Report.

Mr. Joel Barnett: Subsection (4) of the Clause purports to do something about the possibility of avoidance of the duties. I know that my hon. Friend has said that he will consider the Clause—presumably when he considers the Amendment which was withdrawn—but I hope that he will consider whether subsection (4) is necessary to deal with any possibility of avoidance.
Subsections like this in the tax laws can be counter-productive, because we could be having all sorts of provisions to close up loopholes to save possibly very small amounts of avoidance. Avoidance might be reprehensible in some circumstances, but in circumstances of this kind, where the amount involved may be very small—unless my hon. and learned Friend can give me figures, showing that without the subsection there is likely to be substantial avoidance—I would prefer not to have this type of provision.
If, for instance, to save £1 million in tax, it involves countless hundreds and thousands of solicitors and accountants dealing with the tiny difference between whether a company is associated or not in the terms of this subsection, it might be worth considering whether we need to have it. Larger considerations of social justice may be involved, but where there is not any great social justice involved, I hope that my hon. and learned Friend will very carefully consider whether it is worth stopping this hole, because of the amount of extra work involved, both for the Revenue side and others, for example, in deciding what is an associated company.
In this case, a 90 per cent. holding is needed for exemption. I am not sure that 75 per cent. would not be enough. Seventy-five per cent., or even less at times, is considered adequate for the purposes of association, or for where companies are considered for tax purposes to be associated, where they are not subsidiaries or parent companies, where there are the same shareholders in two or three companies. The whole thing becomes very involved and, for the amount of revenue which might or might not be saved, it may be worth considering doing away with the whole subsection.

Mr. John Nott: I support what has been said by my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke). My limited experience of these matters is that in mergers and amalgamations an enormous amount of time is taken up trying to take advantage of the stamp duty concession. Experience would show that more mergers and amalgamations have been delayed and complicated as a result of issuing houses trying to take advantage of these stamp duty concessions than could possibly be worth while.
I agree with the hon. Member for Heywood and Royton (Mr. Barnett) that this sort of concession would be much better abolished so that people would know exactly where they were. Issuing houses certainly act fully within the law when they take advantage of the concession, but an enormous amount of the time of solicitors, accountants, barristers, issuing houses and everyone else is taken up in trying to meet it.
It is time that the Chancellor started thinking about abolishing stamp duty altogether. On Second Reading, the Financial Secretary chided me about getting my foot in the door about one provision, but at least it would be a move in the right direction if he could simplify procedure and take out certain complicating aspects such as these. I cannot believe that it would do any harm to issuing houses, although there might be some pernickety, technically-minded accountants who would complain.

Mr. MacDermot: The Opposition have a remarkable facility for making what is a concession sound as though it is a new charge. In a speech which was wholly out of order the hon. and learned Member for Darwen (Mr. Fletcher-Cooke) drew attention to the fact that the Clause makes a concession, although anyone listening to the debate would have been quite unaware of that fact. Even he thought that he was speaking to an Amendment when, in fact, he was speaking to the Question, "That the Clause stand part of the Bill." I could not follow hon. Members in the general debate which they sought to raise, attacking stamp duty as a whole. The duty brings in a revenue of more than £80 million and the cost of collection is about 2 per cent.
I was asked some questions which were in order and which I shall seek to answer. I was asked why there was not complete exemption up to £7,000 and what was the point of having a reduced rate band for which the ½ per cent. rate was applied. This is another example of something which is found in many other respects, namely, the need to avoid a sudden jump which would give rise to a sense of injustice among those who found themselves on the wrong side of the dividing line. If no duty were paid up to £7,000 while a rate of 1 per cent. suddenly became applicable from £7,001, it would be considered that that was unfair. For that reason there is a reduced rate band and, whenever the two have moved, they have moved in parallel.
I was asked why this provision had to take effect from 1st August. The reason is the nature of stamp duty. The Provisional Collection of Taxes Act, 1913, does not apply to stamp duty. As the hon.

and learned Member for Darwen pointed out, one of the origins of stamp duty is that a document for legal purposes is useless until it is duly stamped, and unless it were known with certainty what the law was, people would not be able duly to stamp a document or to know that it was duly stamped. Therefore, unlike other taxes to which the Provisional Collection of Taxes Act applies, it could not be made applicable from Budget day and could not be made applicable until after the passing of the Finance Bill.
The hon. Member for the Cities of London and Westminster (Mr. John Smith) had a terrible vision of an appalling queue of clerks all waiting to go on their holidays and not being able to do so because of this duty. This change has been made in 1947, 1956, 1958 and 1963 and I am not aware that on those occasions there has been any such problem as he has suggested.
4.15 p.m.
The hon. Member for Orpington (Mr. Lubbock) wanted to know what would be the cost of this increase in the limit. The limits for exemption from transfer duty on houses are being increased from £4,500 to £5,500 and for the reduced rate from £6,000 to £7,000. The cost is estimated at £2½ million this year and £3½ million in a full year, and from those figures the hon. Member will be able to work out the proportions for which he asked.

Mr. Lubbock: What is the saving?

Mr. McDermot: The saving is the cost.

Mr. Lubbock: The cost of the concession is the revenue which will not be collected and is £2½ million this year and £3½ million in a full year. I wanted to know how much saving would be made in administration, how many fewer officials would be needed to administer the duty by reason of the increase in the exemption.

Mr. MacDermot: The hon. Gentleman must put down a Question about that. He cannot expect me to answer questions like that "off the cuff".
The hon. Member also asked how the movement in these limits compared with limits in building costs. I do not have the figures. The last time when the limits were raised was in 1963, but I do not have the figures before me. These limits


are considerably in excess of the average cost of houses transferred, but that is the national average, including old houses as well as modernly-built houses. The position is that the limits have been raised by £1,000 compared with what they were three or four years ago.
The hon. Member for Wycombe (Mr. John Hall) put a technical argument which he asked me to consider before Report, and I gathered that he himself might give further thought to it. I shall be glad to study what he had to say.
My hon. Friend the Member for Heywood and Royton (Mr. Barnett) raised the general issue of anti-avoidance provisions and asked us to consider, not only in this context but generally, whether anti-avoidance provisions in any particular case were worth the trouble, in other words, whether the amount saved would be likely to justify the increased costs of administration, not only for the Revenue, but for others concerned with transactions, and so on. That, of course, is a factor to be taken into account in framing anti-avoidance provisions and I will certainly bear in mind what he had to say about the problem, and I promise to study subsection (4).
However, it is well-known experience that once an anti-avoidance device has been established, unless action is taken to stop it, there is a great rush for the breach in the Revenue's defences. That is illustrated by my hon. Friend's own suggestion for 75 per cent. instead of a 90 per cent. test. I am advised that a provision for 75 per cent. would lead at once to avoidance and to a considerable number of purely artificial transactions to exploit the resulting gap in the stamp duty. I take his point, but I am doubtful about its application in this instance.

Mr. John Smith: I would like to apologise briefly to the Financial Secretary. He stated that the matters raised by me should have been raised in the form of Amendments. Well, I have not had much luck with Amendments, and I have rather given up putting them down.

The Deputy Chairman: Order. For the hon. Gentleman's own safety in the future he had better not raise these matters. He cannot discuss anything that has not been accepted as an Amend-

ment on the Question "That the Clause stand part of the Bill".

Mr. Smith: I just wanted to make one point, which was that the Financial Secretary mentioned that stamp duty raised about £80 million—for the latest recorded year it raised, in fact, just over £76 million. There are 171 different categories and rates under which this duty is raised. Two of those rates, the simplest ones, stamp duty on share transfer and on cheques, about which there is no possible complication, raise nearly half of the duty. It is the 169 other rates and categories which raise this, large in absolute terms, but, relative to the total Revenue, rather trifling sum. I hope that the hon. and learned Gentleman will have a look at this. I am afraid that I am becoming a bit of an Ancient Mariner to the hon. and learned Gentleman. As I said, that is why I did not put down Amendments.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 26.—(LOAN CAPITAL: INCREASE OF DUTY, AND AMENDMENTS AS TO EXEMPTIONS AND RELIEFS.)

Mr. John Hall: I beg to move Amendment No. 176, in page 32, line 12, to leave out subsection (3).

The Deputy Chairman: With this Amendment we can also discuss Amendment No. 177, in page 32, line 16, leave out first 'company' to end of line 37 and insert:
'which is not a body of persons established for charitable purposes only unless the loan capital is "short-term borrowing" that is to say the loan capital is borrowed on terms that either the lender is entitled to be repaid on a fixed date not later than twelve months after the date of the borrowing or the lender is at the date of the borrowing and will at all times while any of the loan is outstanding be entitled to be repaid on demand or on not more than twelve months' notice; and where loan capital has been issued without payment of loan capital duty under the said section 8 by reason of its being short-term borrowing and the terms of the loan are subsequently varied in such a manner that if the date of the variation were the date of the loan the loan would not be short-term borrowing that section shall have effect as if the amount outstanding (otherwise than for interest) in respect of the loan at the date of the variation were an amount of loan capital issued immediately after that time'.


Amendment No. 178, in page 32, line 21, leave out 'also so resident' and insert 'whether or not so resident' and Amendment No. 194, in page 32, line 28, after 'body', insert:
'or an associate of a director as defined by paragraph 5 of Schedule 18 to the Finance Act 1965'.

Mr. Hall: Amendments 178 and 194 are rather technical, and small, points which I will deal with separately at the end of my remarks. Amendment No. 176, by deleting subsection (3), is the simplest way of ensuring that we maintain a clear distinction between borrowing which is chargeable and borrowing not chargeable—a distinction which is well established by Section 29 of the Finance Act 1934.
Amendment 177 is an alternative, and with our usual spirit of compromise we would be happy to accept this if the Government found themselves unable to accept the first Amendment. It is designed to exempt charities, which seem to be caught if the Clause is unamended, and, secondly, to exclude from loan capital duty such borrowing as the borrower can be called upon to repay within 12 months.
When the Chancellor stated his intention to bring loan capital duty into line with share capital duty he gave no reason for this, it was just a brief statement of fact. It was proposed, coincidentally, that the total cost of the stamp duty concessions given by the other Clauses, including £2 million concessions to local authorities and about £3,500,000 to house purchasers under the Clause that we have just been debating, should amount to about the same sum as the additional £6 million to be raised by this Clause. I am sure that it was entire coincidence.
The Chancellor did not tell us this. However, the Chief Secretary when he came to the Second Reading of the Finance Bill was a little clearer. He said:
Clause 26 provides that the rate of loan capital duty, hitherto 2s. 6d. per cent., shall be the same as share capital duty, namely 10s. per cent. One of the repercussions of the effects of the introduction of Corporation Tax was that many companies which would have raised new money in the form of share capital now prefer to raise it in the form of loan capital. It seems sensible therefore that the level of duty should be equated."—

[OFFICIAL REPORT, 2nd May, 1967; Vol. 746, c. 345.]
So much for the provisions dealing with the relief of taxation. It seems a little odd to those of us on this side of the Committee, although I am not sure that it necessarily seems odd to the Government side of the Committee, that to get themselves out of a difficulty created by their financial policy, they should now introduce a stamp duty measure imposing a further burden of £6 million upon those who wish to raise capital in this way.
However, if the reason given by the Chief Secretary is the real one, and it is not a question of raising revenue but of offsetting the cost of the concessions given by the other stamp duty Clauses, then, if the Government are not prepared to accept Amendment No. 176, they must surely be prepared to accept the alternative, Amendment No. 177, Clause 26 will make liable for duty very much borrowing which bears little resemblance to loan capital.
Furthermore, if Section 29 of the Finance Act, 1934, is substantially repealed, then the distinction between borrowing which is chargeable, and borrowing which is not chargeable will become blurred at a time when, because of the increase in duty, it is important that the distinction should be absolutely clear. The definition of loan capital for the purpose of the charge is contained in Section 8(5) of the Finance Act, 1899, and it might be for the convenience of the Committee if I read this, because it shows what a wide area is covered.
The relevant section reads:
In this section the expression "loan capital" means any debenture stock, county stock, corporation stock, municipal stock, or funded debt, by whatever name known, or any capital raised by any local authority, corporation, company, or body of persons formed or established in the United Kingdom, which is borrowed, or has the character of borrowed money, whether it is in the form of stock or in any other form, but does not include any county council or municipal corporation bills repayable not later than twelve months from their date or any overdraft at the bank or other loan raised for a merely temporary purpose for a period not exceeding twelve months, and the expression "local authority" includes any county council, municipal corporation, district council, dock trustees, harbour trustees, or other local body by whatever name called.
We have seen from that that this particular section covers a very wide variety


of borrowing indeed. It is virtually all borrowing. The most important exceptions that will remain after the Bill is enacted is any overdraft at the bank or other loan raised for a merely temporary purpose for a period not exceeding 12 months.
It is that last case which creates some difficulty. Liability to loan capital duty, like any other stamp duty, has to he determined when the chargeable instrument, in this case the statement of loan capital, is executed. In many cases, it will be difficult to say with certainty that borrowing is temporary, for a period of less than 12 months. This can create an area of uncertainty, with the scrupulous taxpayer placed at a disadvantage in relation to the unscrupulous taxpayer, or the taxpayer with a more flexible mind, which is the modern jargon for these things.
What is needed is an objective test. If 12 months is to be taken as the dividing line between short and long-term borrowing for the purposes of the Section which I have read out, then the objective test could be that set out in Amendment 177, which is the alternative Amendment, namely, that borrowing which may be called in within 12 months, whether or not it is called in within that period, can be regarded as short-term borrowing.
This would compare with a bank overdraft and be a reasonable test. Amendment No. 177 does not refer to exemptions provided for in subsection (3) in the Bill, because the Amendment, if the Government are prepared to accept this alternative, would mean that borrowing within a group and directors' loans would be short-term borrowing with the definition.
I do not want to take up the time of the Committee with this point, which I am sure is well understood by the Minister. We find it difficult to understand the desire to bring within the definition of loan capital the very wide variety and form of loan covered by Section8(5) of the Finance Act, 1899, I am sure that it was not intended to make it quite as wide as that. Because we believe that the Government welcome an opportunity to limit the extent to which this Clause penalises the raising of loan capital of various forms, we tabled the Amendment. If it cannot be accepted as it is drafted, the point will no doubt be seen, and the Government will make some attempt to

reduce the liability which they are now imposing.

4.30 p.m.

Referring to Amendment No. 178, a practice has developed in legislation granting tax reliefs on transactions within groups of companies requiring that all companies concerned must be resident in the United Kingdom. Consequently, when an overseas company controls two separate United Kingdom resident companies, the reliefs which would otherwise have been available on transactions between those two companies are denied solely because the parent company is not resident. In some cases, as will be appreciated, overseas parent companies have, for good commercial reasons, incorporated separate United Kingdom subsidiary companies. There seems to me to be no reason why transactions between the United Kingdom subsidiaries should not attract tax reliefs available for inter-group transactions.

On Amendment No. 194, in taxing statutes as a whole, I think that I am right in saying that the reference is to director or an associate of a director. Should not that phrase be used in the Clause, or is there some reason why it is not used?

Mr. Nott: I support what my hon. Friend the Member for Wycombe (Mr. John Hall) has said on subsection (3), which cancels, except in special cases, the definition given by Section 29 of the Finance Act, 1934, to loan capital as capital capable of being dealt in on a Stock Exchange in the United Kingdom. Without this definition, bank loans for more than 12 months would become, by implication, liable to loan capital duty under Section 8 of the Finance Act, 1899.
The United Kingdom, in accordance with Government policy, is making increasing use of medium-term loans, particularly in foreign currency, so that United Kingdom subsidiaries abroad can finance their capital expenditure overseas by borrowing in foreign currency. Unless this point is clarified, some inhibition may be placed on borrowing in foreign currency by United Kingdom companies operating overseas. This is contrary to Government policy, which is to encourage non-sterling borrowing abroad.
Moreover, Report No. 34 of the Prices and Incomes Board on bank charges,


which no doubt we shall hear a good deal more about, calls for greater diversification by the clearing banks of their activities and, in particular, suggests that they should undertake mortgage loans and medium-term commitments. I look forward with great interest to the retort of the clearing banks to this Report and, perhaps, their proposal that, in accordance with Mr. Aubrey Jones's suggestion, they should start competing for deposits in the market. I shall be very interested to see the reaction of the Chancellor of the Exchequer to a suggestion that they should issue certificates of deposit. Nevertheless, an imposition of 10s. per cent. capital duty on a two-year bank loan—by implication, two-year bank loans would be caught, I think—would be serious.
Take a leading company which is borrowing at ½ per cent. over Bank Rate. If it borrows from a clearing bank for two years it will have to bear an additional ½ per cent. over two years—in other words, an additional a per cent. per annum—on the cost of the borrowing. I cannot believe that it is the Government's intention to catch two-year bank loans. Perhaps the Joint Under-Secretary of State would clarify this point about bank loans.

The Joint Under-Secretary of State for Economic Affairs (Mr. Harold Lever): My right hon. Friend the Chancellor of the Exchequer intends to assimilate the duty on loan stock, and the like, with the duty on ordinary share capital. I will deal later with the question, should it be in order and relevant, about whether the Chancellor of the Exchequer is seeking to make good a loss to the Inland Revenue by increasing the stamp duty, but be it enough to say at the moment that all that we are trying to do is to achieve a certain amount of logic, namely, that when a company raises capital, if it is to pay stamp duty on the raising of permanent capital, it should pay the same rate on one lot of capital as on another.
If there is an argument arising from the Finance Bill, it is that in the case of loan stock the company pays less tax on its profits than it would if it issued the same proportion of ordinary stock. But this is not relevant to the question. It

is simply a matter of attempting to bring about a common sense change in the stamp duty rate so that it is at the same level. The Opposition could well contend that the way to achieve this would be to level down. Normally they are, very properly, levellers up and they must not complain that in this case the reasonable thing to do is to level up.
When I listened to the persuasive moderation of hon. Members speaking on these Amendments, an old Latin tag came in to my mind, "Nemo repente fuit turpissimus", meaning that nobody can achieve the summit of vice at one bound, nobody can achieve the superb professional obduracy of a Treasury Minister overnight. If I find myself listening objectively to the Opposition's arguments, I hope that they will not regard it as a precedent which will last for a long time.
However, I am bound to say that the arguments on the question of short-term borrowing seemed cogent. It seemed to me that if we left the matter as it stood there would be an anomalous division between the short-term borrowings which will remain exempt and others which are equally entitled on the same principle but which will not be exempt.
It should be borne in mind that the original exemption—the 1934 Act exemption—which is being abolished was granted so that associated companies might borrow from each other without incurring stamp duty. However, the draftsmen of those days, who had not achieved the meticulous skill of modern Parliamentary draftsmen, drafted at the wrong point. They drafted the provision so that there was exemption as long as a transaction was of such a description as to be incapable of being dealt with on the Stock Exchange. It does not seem to me that this is a very relevant point of distinction for the purpose of exempting loan stock.
While the exemption which is being taken away by the subsection is rightly being taken away, it would not be enough to leave the matter there. I promise the hon. Member for Wycombe (Mr. John Hall) that we will consider the point very carefully and sympathetically. We shall consider the question of giving such exemption to short term borrowings as would bring them all into line and would give people greater certainty in the application of the stamp duty.
We shall take into account what was said by the hon. Member for St. Ives (Mr. Nott), who raised the real difficulty that if 10s. per cent. stamp duty were charged on two-year borrowings through a bank, this would defeat the clear purposes of the exempting subsection. In these circumstances, I hope that the hon. Member for Wycombe will withdraw his Amendment, because Amendments 178 and 194 would not be very relevant if we made a concession of substance on Amendment 177.
I ought, however, to make clear that this sympathy does not, oddly enough, extend to charities. Nobody has advanced a particular case in favour of charities having stamp duty exemption of this kind. From a purely technical viewpoint, it is difficult for the Inland Revenue to administer a stamp duty exemption for charities. The Inland Revenue can administer an Income Tax exemption much more readily. With the Income Tax exemption, the Revenue can ensure that although charity begins with the Inland Revenue, it does not end at home. With stamp duty, there are technical difficulties which make it difficult to ensure that the benefit of the concession is actually applied for charitable purposes.
As, however, no substantial case was made on that point, I hope that the hon. Member will feel able to withdraw the Amendment. We will certainly do our best on Report to meet the points which have been raised.

Mr. John M. Temple: Would the hon. Gentleman care to say that he will take into account loans made within the surrender value of life insurance policies in the same way as he will take into consideration bank loans?

Mr. Lever: We are talking at this point about loans issued by companies and not about borrowings by individuals. I take it that the hon. Member wants me to consider the borrowing by companies on insurance policies. They must be very rare. If, however, they qualified within the exemptions suggested by hon. Members in this discussion, to which I have lent a sympathetic ear, of course they would qualify, too.

Mr. John Hall: I am certain that the Committee fully appreciates and regards with sympathy the difficult transitional

period through which the Minister is passing. Coming from his position as one of the most forceful critics of the Government on financial matters, he now finds himself in the position of defending Government decisions. We appreciate that it will take time for him to settle down and develop the usual stonewalling tactics of the rest of the Treasury Bench.
In the meantime, we are happy to take advantage of the hon. Gentleman's reasonable approach to this matter. I must express to him my own and, I am sure, the Committee's thanks for taking such a reasonable attitude towards our Amendment. On the understanding that on Report the Treasury Bench will bring forward something which goes a long way towards meeting the point which we have raised, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Harold Lever: I beg to move, Amendment 37 in page 33, line 21, at the end to add:
(5) Subsection (1) above shall apply to loan capital issued on or after the said 1st August notwithstanding that a statement relating to it (whether or not with other loan capital) was delivered pursuant to the said section 8 before that day, and the additional duty chargeable by virtue of that subsection shall in such a case be payable on the day on which the capital in question is issued; and where duty in respect of a mortgage or marketable security has been paid on a trust deed or other instrument executed before the said 1st August and securing loan capital any part of which is issued on or after that day, the duty chargeable under the said section 8 as respects that part by virtue of subsections (1) and (2) above shall be payable on the day on which it is issued, but shall be reduced by an amount equal to the excess of the duty paid on the trust deed or other instrument over that which would have been payable on it if it had not secured that part.

The Deputy Chairman: With this Amendment we can discuss Amendment No. 179, in line 21, at end add:
(5) Subsection (1) above shall apply to loan capital issued on or after the said 1st August notwithstanding that a statement relating to it (whether or not with any other loan capital) was delivered pursuant to the said section 8 before that day, and the additional duty chargeable by virtue of that subsection shall in such case be payable on the day on which the capital in question is issued; and where duty under the heading 'Marketable Security' or that beginning 'Mortgage Bond, Debenture, Covenant' has been paid on a trust deed or other instrument whether executed before, on or after the said 1st August and securing loan capital any part of which is issued on


or after that day, the duty chargeable under the said section 8 as respects that part by virtue of subsections (1) and (2) above shall be reduced by an amount equal to the excess of the duty paid on the trust deed or other instrument over that which would have been payable on it if it had not secured that part.

Mr. Lever: My Amendment adds to the Clause to cover the transitional difficulty that somebody might issue a loan stock before 1st August and only collect his money afterwards. This provision will ensure that the full rate of 10s. per cent. will be payable on the money which is raised after 1st August. Assuming that the Committee passes the Clause, that would presumably be the intention of the Committee.
There is no excessive avarice on the part of the Inland Revenue in this matter, because where a debenture, for example, is issued by instalments, the Inland Revenue will treat the issue of the stock as the issue of the debenture and there will be no further duty payable even though the whole of the price is not paid before 1st August next, provided that the instalments to be paid are incorporated in the debenture and that it is issued to the lender before 1st August. This is a commonsense transitional period which the Amendment covers and I hope that the Committee will accept it.

4.45 p.m.

Mr. John Hall: The Government's Amendment goes some way towards removing a defect in the Clause, but I cannot understand why the relief which is given by the Amendment should be limited to instruments executed before 1st August. In our Amendment No. 179, we would like to modify this by the addition of
whether executed before, on or after
and by the omission of the words
shall be payable on the day on which it is issued",
which in any event seem to be superfluous. That is designed to enable the relief to be applied to instruments which are executed on or after, as well as before, 1st August.
The second part of our Amendment is designed to avoid a possible source of ambiguity. In lines 5 and 6, the Chancellor's Amendment uses the words,

"mortgage or marketable security." We would replace those words by the same words as are used in subsection (2) of the Clause.
In many cases, duty will have been paid on a trustee securing unsecured loan stock. Such a document, I understand, is neither a mortgage nor a marketable security, but it is liable to the same duty under the heading which begins, "Mortgage Bond, Debenture, Covenant". If this phraseology is used in subsections (2) and (5), it could be argued that it was intended to convey a different meaning in each case. To remove the ambiguity, we have included the different words in our Amendment.

Mr. Harold Lever: Our consideration of all the points which were raised on the previous Amendment will involve redrafting the Clause, and in so far as any consequential Amendment is required to give effect to the principle which I outlined on the Amendment, it will be taken into account when the Clause is redrafted.
In those circumstances, I trust that the Committee will agree to the Amendment as it stands and, when the Clause is redrafted, take into account the other matters which are properly thought to be adjustable. Whatever is the appropriate consequential Amendment will follow.

Amendment agreed to.

Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Nott: The Clause appears to me to conflict in one respect with Clause 28. My reading of the Clause is that it would make a United Kingdom company which issues bearer bonds denominated in a foreign currency liable to capital duty of 10s. per cent. in accordance with the Clause, whereas the effect of Clause 28 is to exempt from duty of 3 per cent. under the heading "Bearer Instrument" all issues of this type. In other words, Clause 28 rightly abolishes stamp duty on bearer bonds for issues denominated in foreign currency, but in the case of a British company borrowing overseas it makes the position worse than it was before.
As I said on an earlier Amendment, in his 1966 Budget speech the Chancellor of the Exchequer encouraged British firms like I.C.I., B.P. and others to borrow abroad in foreign currency to finance


their expenditure overseas. As I read Clause 26, it would make I.C.I. and B.P. liable for the 10s. per cent. capital duty for which they were not liable before.
There was a specific instance of this in December last year when B.P. borrowed 25 million dollars abroad. B.P. was able to satisfy the Inland Revenue and the Treasury, I think wrongly, that its issue was a foreign loan security. This is an unsatisfactory system whereby the Inland Revenue indulges in extra-statutory legislation. The Inland Revenue told B.P. that its loan in dollars would qualify as a foreign loan security under Section 60(1) of the Finance Act, 1963, because it was neither offered for subscription in the United Kingdom nor offered for subscription with a view to sale in the United Kingdom.
On the basis of an undertaking with regard to Section 60(1) of the Finance Act, 1963, British Petroleum, and I.C.I. before it, borrowed overseas in dollars without being liable to the 3 per cent. bearer bond duty. Now, in accordance with Clause 26, they would be liable for the 10s. capital duty on their borrowing overseas in foreign currency. Therefore, it conflicts with the admirable Clause 28 which we shall come to presently, and I would ask the Minister to look into this, because it must be an error on the part of the draftsman.

Mr. Harold Lever: I will look into it, though I am not persuaded that there is anything to look into. The hon. Gentleman said that someone persuaded the Revenue, wrongly in his opinion, to take the view that the borrowing last year was not dutiable. My first answer to that is that anyone who is able to persuade the Revenue wrongly that a stamp dutiable transaction is not dutiable will enjoy the same privileges, whatever Amendments we make to our legislation. If his case is that last year the law enabled a British company to borrow abroad in dollars without incurring stamp duty, I should have thought that that was not the case. Without notice of the points I should not care to express a more final opinion. In my view, the Clause does not change the law in this regard.
What Clause 28 does is quite different. It exempts from stamp duty bearer bonds issued abroad in certain circumstances.

The intention is to give the relief which my hon. and learned Friend the Financial Secretary will explain. I should be called to order if I were to leap into Clause 28, particularly as I signed an Amendment last year in the sense of Clause 28. As my hon. and learned Friend will be outlining Clause 28 to the Committee, I cannot go into details. However, I must say, provisionally, that borrowing by British companies, whether at home or abroad, is dutiable unless it is exempted by the kind of exemption that we have been discussing which already exists or may exist when we have brought in a suitable Amendment on Report.

Mr. Nott: To clarify the point—

The Deputy Chairman: If the point relates to Clause 28, I think that it would be more appropriate if the hon. Gentleman waited until the Question, "That the Clause stand part of the Bill" on that Clause before pursuing the matter.

Mr. Nott: Mr. Irving, when we come to the Question, "That the Clause stand part of the Bill" on Clause 28, I shall answer the hon. Gentleman's point. I do not believe that it is the intention of the Government under Clause 26 to impose a duty of 10s. per cent. where a United Kingdom company borrows in foreign currency overseas. I do not think that that is the Government's intention, because, previously, under section 60(1) of the Finance Act, 1963, such a British company borrowing overseas in foreign currency by means of a foreign loan security was not liable to any duty, and I do not think that it is the Government's intention to charge them with a 10s. duty now. I am told that, under Clause 26, they will now be liable for the 10s. duty.

Mr. Harold Lever: They will, but that was always the position as I understand it. If there is an exemption due to anyone under Section 60(1) or some other Section of some other Act of which I have not had notice, this Clause will not take that concession away. The position remains as it was in that respect. The benefits of Clause 28, which are partly the result of the hon. Gentleman's interventions on previous Finance Bills, should be discussed in their proper time.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 27.—(LOCAL AUTHORITIES: EXEMPTION OF LOAN CAPITAL AND SECURITIES, AND OF TRANSFERS OF THEIR STOCK.)

Mr. Peter Walker: I beg to move Amendment No. 94, in page 33, line 24, after 'authority', to insert:
'or to capital issued by a docks or harbours authority under the Harbours Act 1964'.
I am delighted that the chief poacher turned Under-Secretary is remaining to continue his happy trend of providing major concessions and agreeing to important Amendments such as this one.
This Clause exempts local authorities from paying stamp duty on their loans and transfers connected with those loans, and the Amendment is an endeavour to see that the various port and harbour authorities will be included in that exemption.
This is a particularly important Amendment to our major ports and docks. If the Amendment is not accepted, it will create an incredible disparity between the treatment of some of our major ports and docks as opposed to others. For example, Bristol, which is a local authority port, will obtain the benefits of the Clause. Liverpool, which is a port controlled by a non-profit-making public trust, will have to pay a considerable amount of stamp duty. I cannot believe that that would be the Government's intention.
In his Budget statement, the Chancellor made no specific mention of ports and docks. He said that local authorities would enjoy exemption, and naturally I concluded that part of the exemption would be extended to the various port and dock authorities. When I looked at the Finance Bill, I was surprised to discover that these authorities were not included in the Clause and, as a result, we have tabled the appropriate Amendment.
The Government have made it clear that they are anxious to assist in the various investment programmes in our ports and docks. I would remind the Committee that the "Little Neddy" dealing with exports considered that one of the most fundamentally important steps which could be taken by the Government was the encouragement of investment in ports and docks, particularly with the revolution in containerisation which is taking place.
This increase in stamp duty on loans probably will hit ports and docks to a greater extent than it will affect almost any sector of the economy. I wonder if the Under-Secretary recognises that it is likely that something like 6d. in the £ of all the tax raised by these new increases will come from the ports and docks unless this Amendment is accepted. It bears particularly heavily upon some of the areas which the Goverment say that they wish to encourage. For example, on Merseyside, the increase in duty will cost the Mersey Docks and Harbour Board no less than £187,500 during the next three years. I do not believe that the Government seriously wish to add to the costs of the non-profit making publicly-owned Mersey Docks and Harbour Board to that extent over the next three years. London will have to meet a similar sort of bill during the next three years, and some of the other ports and docks which will be affected include the Tyne ports, the Clyde and Belfast. In all, something like £375,000 will be taken in additional stamp duty from these ports and docks as a result of the investment programmes which they are having to carry out.
We noticed in his speech that the Under-Secretary stated how keen he was on logic and conformity, and I am sure that he would not want to see this Bill go through with Bristol treated in one way and the Mersey treated in another. Therefore, in order to obtain the consistency and logic which he now desires, I know that he will be pleased to accept this Amendment. It is because I know that he will spring to his feet with another sensible concession that I cease my remarks in order that the Committee should continue with further business.

5.0 p.m.

Mr. Harold Lever: I do not want to imply that the persuasive moderation of the hon. Member for Worcester (Mr. Peter Walker) is less convincing than any which has preceded it, even though it may not be as effective in its consequence.
The hon. Gentleman's case is, unfortunately, defective in logic, in that he appears to be acting as though the exemption from duty of local authorities who happen to be running a dock or harbour was given to them because they happened to be doing that. The essence of the


concession or exemption from stamp duty is that it is given to a local authority more or less as the Government give it to part of themselves—because a local authority is part of the governmental machine. In order to reduce—we cannot avoid—pointless transfer payments from the left pocket to the right one, we exempt local authorities.
Some local authorities may be docks and harbour authorities, but that does not mean that because of that we can exempt other docks and harbour people who are not local authorities. The essence of the exemption derives not from the wider connections of the local authority, but because of the administrative governmental connection, so that what the hon. Gentleman is really seeking to do is to transfer the concession granted to a local authority because of its capacity as part of the governmental machine to docks and harbour boards whose endeavours, however worthy, cannot qualify for the description which the hon. Gentleman has given.
There are objections, which the hon. Gentleman will see, to making this somewhat illogical jump, because once this concession is given to docks and harbour authorities, the case becomes much wider. The hon. Gentleman ought to be logical and table an Amendment to exclude all public utilities. Why pick on docks and harbour boards? Why not exclude other public utilities?

Mr. Nott: Hear, hear.

Mr. Lever: The hon. Member for St. Ives (Mr. Nott) says "Hear, hear", but we do not see any Amendment, either in his name, or in the name of anybody else in the Opposition, to this effect. If the case is that hon. Gentlemen opposite want to demolish stamp duty by giving wholesale exemptions, that is one thing, and it is a case which might meet with a responsive ear somewhere in the Treasury, but the point at issue is that we are discussing a somewhat illogical demand that because some local authorities are also docks and harbour authorities and get stamp duty exemption on their borrowings, all docks and harbour boards which are not local authorities should get a similar exemption.
The cogency of this has not overtaken me, and, much as I would like to listen sympathetically to the Amendment, I must

advise the Committee to reject it if the hon. Gentleman does not withdraw it.

Mr. David Webster: It seems to me that the Joint Under Secretary of State for Economic Affairs, whose knowledge on this subject I respect, gave the best possible argument for accepting the Amendment. It seems that because one part of the docks system is part of the governmental machine, it should be given advantages. I think that the best thing to do is to accept the Amendment and say that all the docks and harbour authorities should be treated alike.
I have no complaint against that part of the present system by which Bristol is singled out for particular advantages, but it seems an anomaly that Merseyside, which is the same distance from the other side of the Atlantic as Bristol is, should be treated differently. The history of the development by Brunel and others, and the rise and fall of the two ports, has been very much the woof and warp of this country's naval history. It therefore seems crazy that this anomaly should be maintained because of an absolutely fallacious argument put forward by the hon. Gentleman.
It is the intention of the Minister of Transport to abolish this anomaly next year by nationalising the docks. I am sorry that the right hon. Lady is not here to maintain an element of justice between two different parts of the docks system by persuading the hon. Gentleman that what my hon. Friend is suggesting is reasonable.
As there is a tremendous demand for exports to be increased and to reduce import charges, and because of the immense amount of capital needed to handle the new container traffic, I should have thought that anything that could be done to ameliorate the loss of those who devotedly administer our docks was reasonable. Despite the fact that there is nobody here from the Ministry of Transport, I hope that the hon. Gentleman will reconsider his attitude to the Amendment.

Mr. Nott: I would be very much concerned about competing with the hon. Gentleman's logic which we know is of the highest order, but when he spoke about local authority borrowing going out of one pocket and into another he made much sense. He said that it would merely


add to the Government's own cost of borrowing and the Government ultimately had to stand behind local authorities in their borrowing. Does this not also apply to public utilities? What my hon. Friend is suggesting is merely one example where public utilities might be exempted from this duty.
Is it not the case that ultimately the Government would have to stand behind the Mersey Docks and Harbour Board and the Port of London Authority? Does not stamp duty merely add to the cost of borrowing for the P.L.A. and Mersey Docks and Harbour Board? Either the Mersey Docks and Harbour Board has to raise its charges, which is bad for the export trade, or the Government have to help public utilities in some other way.

Mr. Barnett: If we accept the argument that all public utilities should be exempted, would not the next piece of logic be that private industry, which is competing with public utilities, should be exempted so as to be fair? Would the hon. Gentleman agree with that extension of his logic?

Mr. Nott: I was not discussing whether it was fair. We know that there is nothing fair in the competition between the public and private sectors, but I am delighted that the hon. Gentleman might become an advocate of the theory that the two sectors should receive equal treatment. I was trying to say that, ultimately, public utilities were the responsibility of the Government, at least in practice if not in theory, and that they should therefore be treated in the same way as local authorities for stamp duty purposes.

Mr. Harold Lever: Perhaps I might try to clear up one or two of the points which have been raised. I recognise that this is an interesting debate which can be extended by linkage into all sorts of spheres, but I think that the Committee would be well advised to focus its attention more narrowly. After all, these boards have ordinary capital which they issue, and on which they sometimes pay dividends, and this is not exempt at the present time. Nobody has suggested that it should be. One knows that when a party has been in power for 13 years, and then becomes the Opposition, impatient perfectionism develops on their

arrival on the Opposition benches. We can see that they have had time to reflect on the advantages of exempting docks and harbour boards from all stamp duty, but nobody has suggested this before.
I am sure that the hon. Gentleman, who was very responsible and moderate in his approach, would not want to burst on the Committee with the shock of novelty the whole concept that we should abolish stamp duty on the ordinary shares as well as the loan accounts, of all docks and harbour boards, because if we do it for loan stock we should do it for ordinary stock.

Mr. Nott: I am not aware of any harbour authority which has ordinary shares. Could the hon. Gentleman give an example of one?

Mr. Lever: My information is that one was recently offered on the Stock Exchange. There is no doubt that some of these boards have ordinary stock. At any rate, nobody has suggested that it would be desirable to exempt them.
If we follow the hon. Member for St. Ives (Mr. Nott) and say that we ought to exempt all public utilities—although nobody has suggested this, it has come as a side-wind from this debate—it will represent a massive incursion into stamp duty.
That is not what the Amendment requires, but never mind. If we were to do that, we would raise serious problems, upon which I could not enlarge without becoming out of order. Local authorities who run certain businesses and trades would be exempt from stamp duty vis-à-vis their private enterprise competitors. That would raise another objection. Then we would find the hon. Member for St. Ives saying that we must relieve private enterprise competitors of local authorities of stamp duty. In other words, we should abolish all stamp duty. It is an interesting exercise, but it is hardly justified by the terms of the Amendment.
For the most part it is the intention of utilities to try to make a profit and run on commercial terms. The case for simply exempting them—on the ground that they are publicly-owned—from some of the commercial handicaps that operate against private enterprise would be a difficult one to sustain. In those circumstances, I hope that the hon. Member will reflect upon


the point and feel that, in the circumstances, the Amendment should be withdrawn.
I give it to him that he has one point, in logic. If the stamp duty really were such as to make a great difference in the competitive position of different ports—and this was rather implied by the intervention of the hon. Member for Weston-super-Mare (Mr. Webster)—the matter would require looking at, but we are dealing with 10s. per £100 loan stock duty, and the Amendment can hardly be accepted.

Mr. Peter Walker: After the Minister's good performance, when my hon. Friend the Member for Wycombe (Mr. John Hall) commented that he hoped that it would be some time before the Treasury had its effect on him, it is disappointing that in so short a time the Treasury should have had its full effect upon him. He mentioned the impatient perfectionism that Oppositions indulge in. In the years from 1951 to 1964 the Parliamentary Secretary has been in impatient opposition, and we were hoping that when he moved into the Government we would have some perfectionism and better treatment than this.
The Government claim that they are always seeking ways in which to help development areas and exporters. Until this moment there has been no tax upon port authorities raising loan capital.

Mr. Harold Lever: Does the hon. Member mean to say that there has been no duty of this kind at all until now? Surely that is incorrect.

Mr. Walker: The tax on the loan capital of non-profit-making port authorities has been substantially increased from 2s. 6d. to 10s. Until this time there has been a tax of 2s. 6d., and now, when the ports and docks are embarking upon an enormous reinvestment programme, owing to containerisation and similar developments, the Government decide to quadruple the duty on these ports.
The Amendment is so framed as to define those port authorities which are not private enterprise but are public trusts, and this is a way in which the Government could have made a small concession which would have helped a number of development areas. More than half the revenue raised from the ports comes from the Mersey, the Tyne, the Clyde and Belfast. If the Amendment were accepted those four development areas would be helped.
Secondly, it would have helped exports. The Government claim that one difficulty about giving concessions to exporters is that it would be contrary to various international agreements. This was a way which would have avoided that difficulty, without any great extension of principle. They could have assisted part of our industry and commerce which was helping both development areas and exporters. Instead, they have decided to stick rigidly to a Treasury brief, and I must ask my hon. Friends to divide on the Amendment.

Question put, That those words be there inserted:—

The Committee divided: Ayes 139, Noes 192.

Division No. 358.]
AYES
[5.17 p.m.


Allason, James (Hemel Hempstead)
Corfield, F. V.
Gower, Raymond


Astor, John
Costain, A. P.
Grant, Anthony


Bell, Ronald
Craddock, Sir Beresford (Spelthorne)
Grieve, Percy


Biffen, John
Crosthwaite-Eyre, Sir Oliver
Grimond, Rt. Hn. J.


Biggs-Davison, John
Crowder, F. P.
Gurden, Harold


Body, Richard
Cunningham, Sir Knox
Hall, John (Wycombe)


Bossom, Sir Clive
Currie, G. B. H.
Harris, Frederic (Croydon, N.W.)


Boyd-Carpenter, Rt. Hn. John
Dance, James
Harris, Reader (Heston)


Boyle, Rt. Hn. Sir Edward
Davidson, James (Aberdeenshire, W.)
Harrison, Brian (Maldon)


Braine, Bernard
Dean, Paul (Somerset, N.)
Harrison, Col. Sir Harwood (Eye)


Bromley-Davenport, Lt.-Col. Sir Walter
Deedes, Rt. Hn. W. F. (Ashford)
Harvey, Sir Arthur Vera


Brown, Sir Edward (Bath)
Doughty, Charles
Hastings, Stephen


Bruce-Gardyne, J.
Eyre, Reginald
Heald, Rt. Hn. Sir Lionel


Burden, F. A.
Fisher, Nigel
Heath, Rt. Hn. Edward


Campbell, Gordon
Fletcher-Cooke, Charles
Higgins, Terence L.


Carr, Rt. Hn. Robert
Fortescue, Tim
Hill, J. E. B.


Cary, Sir Robert
Foster, Sir John
Hobson, Rt. Hn. Sir John


Channon, H. P. G.
Gilmour, Ian (Norfolk, C.)
Holland, Philip


Chichester-Clark, R.
Glover, Sir Douglas
Hooson, Emlyn


Cooke, Robert
Glyn, Sir Richard
Hordern, Peter


Cooper-Key, Sir Neill
Goodhew, Victor
Hornby, Richard




Howell, David (Guildford)
Murton, Oscar
Tapsell, Peter


Hunt, John
Nabarro, Sir Gerald
Taylor, Sir Charles (Eastbourne)


Hutchison, Michael Clark
Noble, Rt. Hn. Michael
Taylor, Edward M. (G'gow, Cathcart)


Iremonger, T. L.
Nott, John
Taylor, Frank (Moss Side)


Jenkin, Patrick (Woodford)
Onslow, Cranley
Temple, John M.


King, Evelyn (Dorset, S.)
Page, Graham (Crosby)
Thatcher, Mrs. Margaret


Knight, Mrs. Jill
Page, John (Harrow, W.)
Thorpe, Rt. Hn. Jeremy


Langford-Holt, Sir John
Pardoe, John
Turton, Rt. Hn. R. H.


Lewis, Kenneth (Rutland)
Pearson, Sir Frank (Clitheroe)
van Straubenzee, W. R.


Lloyd, Rt. Hn. Selwyn (Wirral)
Percival, Ian
Vaughan-Morgan, Rt. Hn. Sir John


Loveys, W. H.
Pike, Miss Mervyn
Walker, Peter (Worcester)


Lubbock, Eric
Pink, R. Bonner
Walker-Smith, Rt. Hn. Sir Derek


McAdden, Sir Stephen
Prior, J. M. L.
Wall, Patrick


MacArthur, Ian
Pym, Francis
Ward, Dame Irene


Maclean, Sir Fitzroy
Rawlinson, Rt. Hn. Sir Peter
Weatherill, Bernard


Macleod, Rt. Hn. Iain
Rees-Davies, W. R.
Webster, David


McMaster, Stanley
Renton, Rt. Hn. Sir David
Wells, John (Maidstone)


Marples, Rt. Hn. Ernest
Ridley, Hn. Nicholas
Whitelaw, Rt. Hn. William


Marten, Neil
Rippon, Rt. Hn. Geoffrey
Wills, Sir Gerald (Bridgwater)


Maude, Angus
Rodgers, Sir John (Sevenoaks)
Wilson, Geoffrey (Truro)


Mawby, Ray
Russell, Sir Ronald
Wolrige-Gordon, Patrick


Maxwell-Hyslop, R. J.
Scott, Nicholas
Woodnutt, Mark


Maydon, Lt.-Cmdr. S. L. C.
Sharples, Richard



Mills, Stratton (Belfast, N.)
Shaw, Michael (Sc'b'gh &amp; Whitby)
TELLERS FOR THE AYES:


Mitchell, David (Basingstoke)
Sinclair, Sir George
Mr. R. W. Elliott and


More, Jasper
Smith, John
Mr. Timothy Kitson.


Mott-Radclyffe, Sir Charles
Summers, Sir Spencer





NOES


Abse, Leo
Finch, Harold
MacPherson, Malcolm


Albu, Austen
Fletcher, Ted (Darlington)
Mallalieu, E. L. (Brigg)


Allaun, Frank (Salford, E.)
Ford, Ben
Mallalieu, J.P.W. (Huddersfield, E.)


Allen, Scholefield
Freeson, Reginald
Manuel, Archie


Atkins, Ronald (Preston, N.)
Gordon Walker, Rt. Hn. P. C.
Mapp, Charles


Atkinson, Norman (Tottenham)
Greenwood, Rt. Hn. Anthony
Marquand, David


Bacon, Rt. Hn. Alice
Gregory, Arnold
Mendelson, J. J.


Bagier, Gordon A. T.
Grey, Charles (Durham)
Millan, Bruce


Barnett, Joel
Griffiths, David (Rother Valley)
Miller, Dr. M. S.


Beaney, Alan
Griffiths, Rt. Hn. James (Llanelly)
Mitchell, R. C. (S'th'pton, Test)


Benn, Rt. Hn. Anthony Wedgwood
Hale, Leslie (Oldham, W.)
Moonman, Eric


Bidwell, Sydney
Hamilton, James (Bothwell)
Morgan, Elystan (Cardiganshire)


Binns, John
Hamilton, William (Fife, W.)
Morris, Alfred (Wythenshawe)


Bishop, E. S.
Hannan, William
Morris, Charles R. (Openshaw)


Blackburn, F,
Harper, Joseph
Morris, John (Aberavon)


Booth, Albert
Harrison, Walter (Wakefield)
Moyle, Roland


Boston, Terence
Hart, Mrs. Judith
Mulley, Rt. Hn. Frederick


Boyden, James
Haseldine, Norman
Newens, Stan


Braddock, Mrs. E. M.
Henig, Stanley
Noel-Baker, Rt.Hn. Philip (Derby, S.)


Bray, Dr. Jeremy
Herbison, Rt. Hn. Margaret
Oakes, Cordon


Brown, Rt. Hn. George (Belper)
Hooley, Frank
Ogden, Eric


Brown, Bob (N'c'tle-upon-Tyne, W.)
Howarth, Harry (Wellingborough)
O'Malley, Brian


Buchanan, Richard (G'gow, Sp'burn)
Howarth, Robert (Bolton, E.)
Oram, Albert E.


Butler, Herbert (Hackney, C.)
Howell, Denis (Small Heath)
Orbach, Maurice


Callaghan, Rt. Hn. James
Hoy, James
Orme, Stanley


Carmichael, Neil
Huckfield, L.
Oswald, Thomas


Carter-Jones, Lewis
Hughes, Rt. Hn. Cledwyn (Anglesey)
Owen, Dr. David (Plymouth, S'tn)


Castle, Rt. Hn. Barbara
Hughes, Hector (Aberdeen, N.)
Owen, Will (Morpeth)


Chapman, Donald
Hynd, John
Paget, R. T.


Coe, Denis
Jackson, Colin (B'h'se &amp; Spenb'gh)
Pannell, Rt. Hn. Charles


Coleman, Donald
Jackson, Peter M. (High Peak)
Pavitt, Laurence


Concannon, J. D.
Janner, Sir Barnett
Pearson, Arthur (Pontypridd)


Conlan, Bernard

Peart, Rt. Hn. Fred


Craddock, George (Bradford, S.)
Jenkins, Rt. Hn. Roy (Stechford)
Pentland, Norman


Crossman, Rt. Hn. Richard
Johnson, James (K'ston-on-Hull, W.)
Perry, Ernest G. (Battersea, S.)


Dalyell, Tam
Jones, Dan (Burnley)
Perry, George H. (Nottingham, S.)


Darling, Rt. Hn. George
Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)
Prentice, Rt. Hn. R. E.


Davidson, Arthur (Accrington)
Judd, Frank
Price, Thomas (Westhoughton)



Kelley, Richard
Randall, Harry


Davies, Dr. Ernest (Stretford)
Kerr, Russell (Feltham)
Rankin, John


Davies, Harold (Leek)
Lee, John (Reading)
Rees, Merlyn


Delargy, Hugh
Lestor, Miss Joan
Robinson, W. O. J. (Walth'stow, E.)


Dempsey, James
Lewis, Arthur (W. Ham, N.)
Roebuck, Roy


Dewar, Donald
Lewis, Ron (Carlisle)
Rogers, George (Kensington, N.)


Diamond, Rt. Hn. John
Lipton, Marcus
Ross, Rt. Hn. William


Dickens, James
Lomas, Kenneth
Rowland, Christopher (Meriden)


Doig, Peter
Lyon, Alexander W. (York)
Rowlands, E. (Cardiff, N.)


Driberg, Tom
McBride, Neil
Shaw, Arnold (Ilford, S.)


Dunwoody, Mrs. Gwyneth (Exeter)
McCann, John
Sheldon, Robert


Dunwoody, Dr. John (F'th &amp; C'b'e)
MacColl, James
Shinwell, Rt. Hn. E.


Ellis, John
MacDermot, Niall
Shore, Peter (Stepney)


English, Michael
Macdonald, A. H.
Silkin, Rt. Hn. John (Deptford)


Ensor, David
Mackenzie, Gregor (Rutherglen)
Silverman, Julius (Aston)


Evans, Albert (Islington, S.W.)
Maclennan, Robert
Silverman, Sydney (Nelson)


Faulds, Andrew
McMillan, Tom (Glasgow, C.)
Slater, Joseph







Small, William
Tuck, Raphael
Williams, Alan Lee (Hornchurch)


Snow, Julian
Urwin, T. W.
Williams, W. T. (Warrington)


Spriggs, Leslie
Wainwright, Edwin (Dearne Valley)
Wilson, William (Coventry, S.)


Stewart, Rt. Hn. Michael
Walker, Harold (Doncaster)
Winnick, David


Strauss, Rt. Hn. G. R.
Wallace, George
Winterbottom, R. E.


Swain, Thomas
Watkins, David (Consett)
Woof, Robert


Symonds, J. B.
Watkins, Tudor (Brecon &amp; Radnor)
Yates, Victor


Taverne, Dick
Weitzman, David



Thomson, Rt. Hn. George
Wellbeloved, James
TELLERS FOR THE NOES:


Thornton, Ernest
Willey, Rt. Hn. Frederick
Mr. Ioan L. Evans and


Tinn, James
Williams, Alan (Swansea, W.)
Mr. Ernest Armstrong.

Mr. Harold Lever: I beg to move Amendment No. 38, in page 33, line 37, after 'instrument', to insert 'executed or'.
This Amendment and No. 39 are drafting, to add precision to subsection (2). They grant exemption from stamp duty with effect from 1st August, 1967, to instruments securing money lent to local authorities and transfers of local authority stocks and other securities for moneys which they are lent. This will be of interest more to students of Parliamentary draftsmanship than to those concerned with the substance of the Clause, and I hope that the Committee will accept these technical Amendments.

Amendment agreed to.

Further Amendment made: No. 39, in page 33, line 31, leave out from 'stock' to 'a' and insert:
'issued by, or other security for money lent to'.—[Mr. Harold Lever.]

Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Harold Lever: I treated the Committee earlier to an argument relating to the ordinary stock issues by docks and harbour boards and the existence of any such stock was questioned by hon. Members. I would not confidently assert now that any such stock exists and I hope that I have not misled the Committee on this side issue. I doubt whether any such ordinary stock exists.

Mr. Temple: Watching this Clause closely and following the debate, I greatly doubted whether any ordinary stock of docks and harbour boards existed, and I am glad that the hon. Gentleman has confirmed that it does not. We accept that, and we also accept the Clause as it stands.

Sir Douglas Glover: I am appalled that the Under-Secretary should now be going into theory, in view of the fact that when he was on the back benches supporting his party he always

spoke from practical experience. It is worrying to me that, now he is in the Government, he has become much more of a theoretician than many of his colleagues.

Mr. Harold Lever: The responsibility is mine personally and not that of my advisers. I was anxious that the Committee should not be misled and I was careful to say that I would not confidently assert that there was not any such ordinary stock of a docks and harbour board in existence. I have not said that I would assert the contrary, but I would not like the Committee to be influenced by such an argument in accepting the Clause.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 28 ordered to stand part of the Bill.

Clause 29.—(STAMPING OF FOREIGN BILLS OF EXCHANGE.)

Question proposed, That the Clause stand part of the Bill.

Mr. John Hall: A similar provision to that of this Clause is contained in Section 39 of the Finance Act, 1956, as amended by Section 33(4) of the Finance Act, 1961, in relation to inland bills of exchange and promissory notes. Is there any reason why this Clause should not also apply to promissory notes? Perhaps it was so intended, as, in line 24 on page 35, the words "bills of exchange" are followed by the words "drawn or made". Under the Stamp Act of 1891, bills of exchange are drawn and promissory notes are made, so perhaps it is intended to include them, but I should like the point cleared up.

Mr. John Smith: The Clause deals with bills of exchange drawn outside the United Kingdom and this Clause—even if not some of the others that we have been discussing are not—really is


de minimis. We are dealing with a tax of 2d. If a bill of exchange drawn abroad does not have a stamp on it, one sticks on a 2d stamp. The revenue from the tax on these bills and on inland bills and promissory notes all rolled up together amounts to only £540,000 a year. Of course, bills drawn abroad are immensely fewer and of much less value in total than inland bills and promissory notes together, and I feel that the yield from this tax must, therefore, be trifling.

5.30 p.m.

It is another example of a tax which it may pay the Revenue to collect but which, I am sure, does not pay the economy as a whole. The total revenue from all bills of exchange, including cheques, is about £9 million. This revenue is raised in twopences. The Clause goes on to provide that any such instrument, that is, a bill of exchange,
may be marked by or on behalf of the banker".
What does this operation of marking involve?

I take, because it is the simplest and cheapest and, therefore, the best example from the Government's point of view, the case of a bank which has its own printing works and does its own marking. This operation is the same for inland bills of exchange in the form of cheques. It involves two printing operations and security problems as well. It involves returns from each branch of the bank to its head office of the number of cheques—I call them cheques because that is simpler and people understand it better than bills of exchange—received from the printers, the number issued to customers, and those sent back for destruction.

The printer has to make two returns. He has to make a return of stocks in hand, of the number printed, the number issued to the bank and the number destroyed; and he has to make returns to the chief cashier of the numbers issued to branches. The bank has to keep a revenue account which the printer has to debit and credit, and he has to match that with his own returns.

Even if all those operations cost nothing, let us consider what happens when a bill of exchange marked by the bank is issued to a customer. Anyone

who gets a cheque book has his account—

Mr. J. T. Price: I understood the hon. Gentleman to say a minute ago that about £9 million is collected in odd coppers, in pennies and twopences. My understanding is that bills of exchange are stamped ad valorem according to the value of the bill, and the amounts can be quite substantial. That is what applies to bills of exchange as distinct from cheques, is it not?

Mr. Smith: To the best of my knowledge, they used to be stamped ad valorem, but that requirement was repealed and they are now stamped on a fixed duty.
I was saying that any ordinary customer of a bank who asks for a book of bill of exchange forms, that is, cheque forms in this case, will have his account debited with the value of the stamps and another account in the bank will be credited with that amount of money. The cost of putting an entry through the books of a bank now is about 4s. So the issue of a cheque book costs at least 8s., and the effect of buying a cheque book, with stamp duty on the cheques amounting to less than 8s., is equivalent to tearing up the nation's money. Even ignoring the rest of this operation, that one part of it costs more than the duty raised.
There are other disadvantages to this trifling duty. Another example is the dividend warrant. Many small companies still have the trouble of sending dividend warrants to the Stamp Office for embossing, and, in my experience, the embossing machine occasionally tears them all up so that one has to start again. Irritations of that kind occur.
Not all countries have this tax. It is noteworthy—not that we should copy foreign countries—that good old Sweden does not have this tax and neither does China, though South Africa does. There is a division of opinion in the world on whether a trifling tax on bills of exchange is worth having at all.
We must watch the growing trend of the Revenue to get the taxpayer to do its work for it. It is not sufficient for the Revenue to say that the cost of collection of the tax is small compared with what it brings in. This is a very good example of what I mean. It costs the Revenue


practically nothing to collect this tax—it simply receives large sums from a small number of banks—but the Revenue should not be blind to the cost to the economy of collecting these taxes. The revenue raised by this 2d. tax is just as much lost to the country, owing to the cost of collecting it, as if the money had been torn up.

Mr. Nott: I support my hon. Friend the Member for the Cities of London and Westminster (Mr. John Smith). I am delighted at the rapid progress which we are making in this country. First, bills of this type had ad valorem duty, and then it was changed to a 2d. duty. Then there was a period when bills had to be stamped at the Stamp Office. That was changed, and they no longer had to be stamped at the Stamp Office. Then there was a period when it was possible to buy a 2d. stamp, lick it and stick it on the bill. That was great progress, too. Now we have reached the stage when the Commissioners agree that banking houses dealing in foreign bills of exchange may compound the 2d. duty, and this, of course, is even more convenient than the previous concessions made.
I hope that the hon. Gentleman will tell us how much is involved in foreign bills of exchange. I doubt that it is much more than £100,000 in revenue. I may be wrong and, perhaps, it is a bit more than that, but the fact that people are delirious with joy now that they may compound the 2d. duty on foreign bills of exchange is an indication of the state to which this country is coming. The Government are congratulated on concessions of this kind, but, surely, the duty could be abolished altogether, thereby enhancing international business of this sort. The Clause is a sad reflection, although progress of a sort is being made, on the way that we in this country are unable to cut through the jungle of stamp duty law and bring some sanity into the situation.

Mr. Harold Lever: The hon. Member for St. Ives (Mr. Nott) presupposes a state of enthusiastic delirium among those subject to what I admit is a minor concession on the stamp duty. If there is anyone in a state of exaltation at this minor concession, he is not to be found on this side of the Committee.
The arguments of the hon. Member for the Cities of London and Westminster

(Mr. John Smith) are always listened to with great care, as he is the Member for the entire Treasury Bench, so far as I know. He is certainly my Member of Parliament, so I always listen to him with great attention, in order to feel sure that I am getting value for money. I am rarely disappointed, but on this occasion I was not so impressed. The hon. Gentleman argued that this tax brings in £9 million and the sum paid is 2d. I should have thought that this was an argument for retaining the duty rather than not. We are always talking in favour of shifting from direct taxation which, it is said, deters effort and the like, to indirect taxation. What is this tax? Not only is it indirect taxation, but it is indirect taxation at its most painless. The number of spectacular examples of malnutrition caused by 2d. having to be paid on a bill of exchange must be very limited. On the whole, I imagine that the Committee would regard it as not unreasonable to retain the duty and accept this welcome concession.
It is a concession, and, while speaking in support of it—we are discussing a concession, not the duty itself—I should tell the Committee that a right hon. Gentleman who was more well known in the House as the Chief Whip of the Conservative Party was the fons et origo of this concession. I do not know why my mood inclines to Latin on this occasion, but I should like the Committee to know that he thought of the idea of making this concession, and the Treasury, with its characteristic open-mindedness on concessions which cost nothing, decided that it was possible to make it.
What we are doing here is granting the right to pay this duty in the most convenient and least costly way, namely, by a franking machine. If hon. Members ask why we should not go further, the answer is that we would readily extend the concession, which is convenient for the Revenue as well as for the taxpayer, wherever incentive to forgery would not arise as a result of the use of a franking machine. If there are other points at which hon. Members can suggest extension, they have the excellent precedent that this proposal came from the former Tory Chief Whip, now Lord Redmayne. There is no reason why hon. Members on both sides should not make similar suggestions for extension.

Mr. Gower: We accept that it is a concession—no one denies that—but there was quite an ominous ring in the Under-Secretary's voice when he said that this is a good tax, that it is a small amount, and that we collect this sum of money. I do not like the sound of that. I do not like the ominous tones, the suggestions that this can be extended. I would far rather get it removed. Anyway, we accept this as a concession, though a very minor one.

Mr. John Hall: I think that inadvertently the hon. Gentleman omitted to reply to my point about the promissory notes.

Mr. Harold Lever: I am sorry. I thought that the hon. Gentleman appreciated that I was replying to him. I thought wrongly that it was the hon. Member for the Cities of London and Westminster (Mr. John Smith) who raised the point and I am sorry that I did not realise that this suggestion came from the hon. Gentleman. The position on promissory notes is that we cannot extend the franking permission further until we are satisfied that there is no danger of abuse or misuse of this concession. We will extend the concession in this direction as soon as we can feel reasonably safe about it.

Mr. John Smith: Perhaps I might briefly reply to my constituent. This is not a concession. We must not allow ourselves to be so brain-washed that we treat everything as a concession. It is a way of reducing the cost to the Revenue of raising this tax. It will cost the Revenue much less to collect it in this way. That does not alter the fact that the total cost of collecting the tax, whether it falls on the Revenue or the economy, is greater than the money the tax produces. The reason is that this is a very rare type of tax, a tax on something which costs nothing. A cheque book costs nothing to the customer; he is charged only because of the tax. Therefore, the whole cost of accounting for the wretched thing is part of the cost of collecting the tax. Finally, just how much does this 2d. on bills of exchange drawn abroad raise? I have a little to do with foreign bills, and my experience is that there is not an enormous number

of them about. I do not think that it raises very much money.

Mr. Harold Lever: I may not be able to give the hon. Gentleman the figure. I shall do my best, and if I cannot give it to him this afternoon I will see that he gets it in due course. The fact remains that this is a concession. I do not want to encourage the hon. Gentleman in the insubstantial hope of his winning my vote at the next election. He should not criticise the Revenue for making what is a concession of convenience both to the Revenue and to people who pay the tax. The concession originated from a former Tory Chief Whip, and we at any rate are very grateful to him for this helpful suggestion.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 30.—(CAPITAL GAINS.)

Mr. John Hall: I beg to move Amendment No. 182, in page 36, line 13, at the end to add:
(2) For the year of assessment 1967–68, the rate of capital gains tax shall be 25 per cent.
This is the third year in succession that the Opposition have moved to reduce the rate of Capital Gains Tax. In the first year, 1965, it was moved from the Liberal benches, but last year and again this year the reduction was moved by my right hon. and hon. Friends. The arguments used on previous occasions are as valid now as they were then, and their truth does not become less by repetition. Nothing more clearly demonstrates the truth contained in Alexander Pope's line that
Hope springs eternal in the human breast;
than our moving this Amendment for the third time. He went on to say that
Man never is, but always to be blessed,
and little realised when he penned that line that he was describing what would be the whole philosophy of the Government Front Bench.

5.45 p.m.

If there is one achievement of which the Government can take pride it is in the field of fiscal legislation. That may sound rather odd in the ears of my hon.


Friends, but the Government have succeeded in doing something which I do not think any previous Government have done—to make our tax law so complicated that even tax counsel and accountants cannot understand it, or give proper advice on it to their clients.

The Government have also succeeded in so overburdening the Inland Revenue that the Chancellor of the Exchequer had to buy off a threatened strike last year, and it is clear from the recent conference of Inland Revenue staffs that they find the present situation very grave and unsatisfactory. The Government have also succeeded more than any previous Government—I must be fair and say that other Governments have had a good shot at this—in diverting top men from their proper productive jobs to the consideration of tax affairs to the detriment of the economy.

If I were to try to give pride of place to the tax which has contributed most to this undesirable result I think that I should give it to the Capital Gains Tax. Professor Wheatcroft, who, together with Mr. Park, has produced as authoritative a volume on Capital Gains Tax as any volume can be in the present confused state of the tax, expresses this point very fairly on page 457 of his book, in which he points out:
Unfortunately, however, the Capital Gains Tax also has considerable demerits. First of all, it is unlikely to produce any substantial revenue for a number of years. A tax which brings in no money but involves the country in extremely complicated administration, both to the Revenue and to the tax payer, is a handicap to the country at a time when it is suffering from a serious shortage of skilled manpower.
I could quote further from his strictures, but I think that that is enough for my purpose.

What is the revenue that we are likely to get from the tax? In his 1965 Budget speech the Chancellor of the Exchequer estimated that it would build up to, I think he said, £125 million at some unexplained time in the future—[An HON. MEMBER: "Fifteen years."]—Yes, in 15 years. He estimated then that in 1966–67 the yield from long and short term tax would be £12 million, and in 1967–68 £30 million.

I understand that the actual result in 1966–67 was £7 million and the estimated out-turn for the current fiscal year

1967–68 is £5 million. The cost of our proposal to reduce the rate from 30 to 25 per cent. would be under £1 million on the basis of the present estimate, a very modest proposal. But, of course, this is entirely arithmetic. Nobody really knows what the figures will be. Whatever we put up to the Committee as a possible yield from the tax at this stage appears to be simply guesswork.

However, we know that in other countries the revenue from this type of tax is small and the cost of collection is very high. What we do not know is what the cost of collection is in this country. Certain of my hon. Friends and I have tried from time to time to get information on this point by varying our questions to the Treasury Bench. But with that skill which one so admires its members manage to stonewall in their answers, and we still have no information on the point. But we do know the total cost in terms of extra Inland Revenue staff and accounts staff. The total time spent on it by many thousands of people throughout the country must be high. We also know that the tax as now operated is increasingly becoming a tax on capital as well as on capital gains.

I turn again to the only authoritative book outside the Inland Revenue's own pamphlet on the subject. Professor Wheatcroft gives very interesting tables on page 2 of his book. Table 1 shows the money gain of an asset at different rates of inflation with a constant real value over five, 15, 20 and 25 years. Let us take an example from that, bearing in mind that the Index of Retail Prices in April this year showed a rise of 10·8 per cent. since October, 1964. It would not be unreasonable to take 5 per cent. as the rate of inflation under the present Government for a period of years until they are superseded. Taking it as 5 per cent., at this rate of inflation an asset worth £100 today will be valued in 10 years' time at £162·9 and there will be a tax on the gain of nearly £19 if the rate of 30 per cent. still applied. Taking the value of the asset 15 years from now, an asset of £100 now will then be worth £207·9, and if it is realised then, the tax on gain will be slightly over £60. If we take it over the whole period of 25 years, the value of that asset will be £338·6 at the end of that period and the tax on the gain will be over £100.

Mr. Barnett: With regard to the tax on the gain, if the hon. Gentleman wants to be completely fair to the Committee he should point out that the rate that he has taken applies to a very small percentage of taxpayers.

Mr. Hall: It applies to a percentage of taxpayers, it is true, but the full rate applies to many taxpayers in addition. If one takes the smaller rate, the argument still remains that it is a tax on capital and not a tax on capital gains. What one sees here is that whereas one has an asset at the end of these various periods which is worth no more in real terms, nevertheless in each case the individual concerned has had to pay tax of an increasing amount, which is the tax on capital.
Professor Wheatcroft has made clear in Table II on the same page that with inflation Capital Gains Tax is equivalent to a wealth tax at a substantial rate. Perhaps this was the intention of the Government when they introduced Capital Gains Tax. If so, it did not say so, but it may well have been their intention.
Our proposal to reduce the rate to 25 per cent. will not cure this, however, but it will tend to reduce its effect. Furthermore, it will bring us into line with the U.S.A., which is the one country with which the Financial Secretary has on the two previous occasions when we have debated the substance of this Amend-suggested that we could properly compare ourselves. It was this comparison, as the Financial Secretary will no doubt remember, that led to the birth of MacDermot's Law in 1965. That is an event that we have celebrated each year about this time, and no doubt it will find its place in due course in the cautionary tales with which we regale our grandchildren.
I would remind the Committee of MacDermot's Law. I will sum it up as accurately as I can. Briefly, it was that if we have a higher maximum level of personal taxation than any other country, our other taxes should also be higher. As the United Kingdom has a much higher maximum level of personal taxation than any other country, the Capital Gains Tax should also be higher. I remember on a previous occasion summing this up by a version of an old verse:
High taxes have higher taxes
Upon their backs to bite 'em,
And higher taxes have higher taxes
And so ad infinitum.

That seemed roughly what MacDermot's Law amounted to.
Many tax experts take a rather different view, the view that when Capital Gains Tax was introduced at the rate of 30 per cent. there should have been substantial reductions in the top rates of Surtax. This is a fairly widely held view. Nevertheless, the Surtax remains at the top rate of 91¼ per cent., excluding the surcharge which we are paying this year.

Mr. MacDermot: Could the hon. Gentleman explain why, if there was a 30 per cent. rate of Capital Gains Tax, it would be very logical to reduce the Surtax level?

Mr. Hall: The reason is that it is considered that the maximum rate of Capital Gains Tax affects those who come into the Surtax level, and, therefore, if one imposed a rate of 30 per cent. of Capital Gains Tax, which includes an element of wealth tax in it, it would have been logical in itself, if social justice is to be done, to reduce the top level of Surtax at the same time. Perhaps in consequence of this the Financial Secretary may be moved to give a small concession, though after his intervention I am not very hopeful about that.
I am driven to quote Alexander Pope again. In "Letters to Fortescue" he wrote:
Blessed is the man who expects nothing for he shall not be disappointed.
In that sense I am blessed indeed because I expect nothing. A Government who can produce the Selective Employment Tax and the Capital Gains Tax in its present form are unlikely to be moved by any appeal to their sense of fiscal justice. Ministers who were unmoved last year and the year before by the eloquent arguments advanced by my right hon. and hon. Friends must, I fear, have developed a built-in resistance to reason and logic.
I very much regret that the Joint Under-Secretary of State for Economic Affairs—he has now left us—who from time to time in our previous debates in 1965 and 1966 supported our point of view with great cogency and logic, should gradually become contaminated by the atmosphere of the Government Front Bench and is coming to a point when before long I am sure he will be arguing even against his own convictions.
I do not want to repeat the arguments that were advanced on the two previous occasions. I have tried to avoid doing so. I have taken another point altogether. As I have tried to resist that temptation, I hope that the Financial Secretary will resist the temptation to repeat the usual argument about this concession benefiting only Surtax payers—even if that were wholly true, which it is not. I remind him that the overwhelming majority of the leaders of our community on whom we depend for their skill, drive, initiative and enterprise are Surtax payers, and if they become really convinced that the Government believe it right to maintain the most savage progressive Surtax system of any major industrial country—and knowing that continuing inflation will push them higher up the Surtax scale without increasing their real income—they may reconsider the motives of prestige, power and status which the Chief Secretary believes keep them anchored to this country without regard to the mundane matter of net income.

Mr. J. T. Price: The hon. Gentleman is producing a most heartrending argument in favour of very wealthy members of our community. In that narrow band of logic there is a single argument that he can sustain so far as fiscal affairs are concerned. But is it not going rather far to suggest that all the people in the higher income brackets who have the privilege of paying Surtax render any useful service to the community? Surely it is a question of the professional owning classes, the great estate owners, who contribute nothing to the welfare of this country but are in that bracket. Surely the argument is invalid.

Mr. Hall: It is, of course, true that not all Surtax payers make a useful contribution to the welfare and the economy of the country. It is also true that not all those who do not pay any tax at all make a useful contribution to the welfare and economy of the country.

Mr. Frederic Harris: Like some Members of Parliament. Some do, some do not.

Mr. Hall: I should not like to say which Members of Parliament make the greatest contribution. Just because in a particular class of taxpayers there is a minority who may not contribute all

that they should to the country's wellbeing and welfare, that is no argument for imposing a fiscal injustice upon all of them as a body. [Interruption.]

The Chairman: Order. We are dealing with the rate of Capital Gains Tax.

Mr. Hall: I was about to conclude by saying—

Mr. J. T. Price: On a point of order, Sir Eric. I do not mind being rebuked from the Chair, whoever occupies it, if I am in the wrong. But the first interruption was by an hon. Member opposite. Surely he should not get away with it without challenge.

6.0 p.m.

Sir Gerald Nabarro: Further to that point of order. I cannot, Sir Eric, hear my own Front Bench spokesman due to the sedentary interruptions of the hon. Member for Westhoughton (Mr. J. T. Price). Could he be asked to restrain himself?

Mr. Hall: If I may be forgiven for intervening in this debate, perhaps I could now come to the end of my short speech on this Amendment. I was going to say to the Financial Secretary that to grant the concession which we ask, which, as I have already pointed out, on the figures already put before us is a very small concession indeed, and would not cost very much money, would at least be some assurance that the most able are not regarded as fiscal untouchables. It would go a small way to reducing the impact of the wealth tax which is contained in this Capital Gains Tax on top of the Surtax itself.
I am sure that the Financial Secretary has not even had to rehearse all the arguments; he has probably taken note of his speeches on previous occasions and will produce the same argument in trying to reject this Amendment. I hope that I am wrong in that. I hope that his approach will be a fresh one. I hope that he will see how the tax has been developed over the last three years, and has now come to the conclusion that he can at last grant the concession for which we ask.

Mr. Robert Sheldon: The hon. Member for Wycombe (Mr. John Hall) started off with the argument that the Capital Gains Tax is a bad


one because it brings in insufficient revenue, and he has moved an Amendment which reduces the revenue further, but that was only one of a number of contradictions in his speech.

Mr. John Hall: I am sure the hon. Gentleman does not wish to misrepresent me. I was not saying that it was a bad tax because it did not bring in sufficient revenue. I was merely saying that it was not bringing in the amount of revenue which had been estimated.

Mr. Sheldon: With due respect, I understood the hon. Gentleman to mean that a tax which brought in the amount of revenue that this one did was not worth the trouble of collecting.
However, I will leave that, because it became quite clear during the hon. Gentleman's speech what he is really after in moving this Amendment. Of course, we need to consider that this Amendment will affect some people. It may be assumed that it will affect most, but, by the interventions which have been made, I think it has become clear by now that the people whom this Amendment is meant to help are the Surtax payers. Standard rate taxpayers pay, as we know, Capital Gains Tax at a rate of about 20½ per cent., and those who pay Income Tax at a rate less than the standard rate will have an even lower rate of Capital Gains Tax. The only people who pay this tax at the level of 30 per cent. are the high Surtax payers. Once again, we come to one of the favourite taxes for reduction of hon. Members opposite—the reduction of Surtax—and I think that this needs to be clearly understood here and throughout the country.

Mr. Gower: Why does the hon. Member make that assertion, that this for us is one of the favourite taxes for reduction? Is he not aware that, within reason, we are in favour of keeping taxes down, and that it is the party opposite which seems to be in favour of keeping taxes up?

Mr. Sheldon: It may be a purely personal impression, but it seems to me that the greatest fervour is aroused and the most heat generated amongst hon. Members opposite whenever Surtax or the reduction of Surtax is mentioned.
The purpose of the Capital Gains Tax was threefold, as I understood it. First,

there was the need for fairness in taxation, the need to tax increases in wealth wherever it was and in whatever form. Secondly, there was the growing difficulty in distinguishing between capital gains and income; because of the various devices sophisticated people were beginning to employ it became extremely difficult to distinguish between income and appreciation of capital, and obvious that what really needed to be taxed was wealth.
The third and the big argument, as I understood it, was the closing of the loophole for the avoidance of Corporation Tax and this was really why it was introduced at the same time. With the introduction of Corporation Tax, with its many advantages in separating company tax from individual tax, encouraging the ploughing back of profits, and all the other benefits which, I believe, flowed from the introduction of Corporation Tax, a large part of this could have been negatived by artificial and untaxed creations of capital. This is prevented by the Capital Gains Tax. The formation of companies, and the selling of companies and the creation, in other words, of capital assets to avoid Corporation Tax would have been a loophole. The Capital Gains Tax effected the stopping of a loophole.
We all know that as soon as we stop a loophole, and stop it successfully, we then stop a large part of the activity going through that loophole. This is one of the reasons why, as we well know, Capital Gains Tax in its initial years will be a very low revenue raiser. It stops the use of making capital gains in the way that would have been so used if the tax had not been brought in. It is, therefore, in its essential nature, a long-term tax in its revenue aspects, but a short-term requirement to be used with the Corporation Tax. This was why it was so introduced, and I think that this should be clearly understood.

Sir G. Nabarro: I want at once to bring this debate down to earth and to contradict outright and downright the hon. Gentleman the Member for Ashton-under-Lyne (Mr. Sheldon). The tenor of his speech, as usual, was to impute to me and many of my hon. Friends the sole desire to see Surtax and other taxes which afflict the wealthy and the well-to-do reduced. Nothing of the kind. Neither is it true: there is not one jot or tittle of


truth in the statement made by the hon. Gentleman the Member for Ashton-underLyne—that only Surtax payers are affected by this Amendment. I wrote his words down—"only Surtax payers". What drivelling rot.
Take the Stock Exchange alone, of which the hon. Gentleman's knowledge is nil. There are 4 million owners of equity and other stocks and securities, including unit trusts, quoted on the London and provincial stock exchanges—4 million of them. Every one of the 4 million is affected by the Capital Gains Tax. Are all those 4 million people Surtax payers? Of course they are not. The number of Surtax payers in this country is relatively tiny.
The hon. Member has never carried out the juvenile exercise, the relatively simple exercise, of looking at the report of a unit trust, to see the extraordinary complexities in which we have now been plunged by the incidence of the capital gains duty. Does the hon. Member know, for example, that all the calculations in respect of the value of units declared half yearly by all our unit trusts often have to be shown to nine places of decimals of 1d. for the guidance of unit owners? And there are 4 million owners of stocks and shares afflicted.
Perhaps the hon. Gentleman the Member for Ashton-under-Lyne, when he has had time to reflect upon the errors of his utterances, will apologise for deliberately misleading the Committee, deliberately—

Mr. Sheldon: rose—

Sir G. Nabarro: I will give way in a moment, when I am ready. The hon. Gentleman is the most reluctant hon. Member of this Committee ever to give way. I will teach him how to do it in a moment.

Mr. Sheldon: I shall have to be leaving in a moment, and may not be able to intervene if the hon. Member does not give way now.

Sir G. Nabarro: If the hon. Gentleman has to leave, I hasten him on his way. He will wait in his seat till I am ready for him. A pompous, arrogant statement. I have driven the hon. Gentleman out of the Chamber. Hooray! He is one Socialist Member who cannot take his medicine.
There are 4 million Stock Exchange investors alone who are interested in Capital Gains Tax. Then there are millions more people who own houses other than the houses they live in and who are also affected by the provisions of Capital Gains Tax. There are millions more people who own chattels and capital assets valued individually at over £2,000 other than stocks, shares and securities. All of them, under the provisions of the 1965 Act, are afflicted by Capital Gains Tax.
We now perhaps will realise what drivelling rot it was on the part of the hon. Member for Ashton-under-Lyne to use those words, "Only Surtax payers are afflicted by this measure." It was Socialist political polemics, seeking to represent that my hon. Friends and I are advancing the cause in this Committee only of rich men. On the contrary, we are advocating the cause of fiscal equity and simplicity.

Mr. J. T. Price: Not so simple.

Sir G. Nabarro: Does the hon. Gentleman wish to intervene? I gladly give way to him.

Mr. J. T. Price: I was saying that the hon. Gentleman the Member for Worcestershire, South (Sir G. Nabarro) is not so simple as he would have us believe. His argument is based on fallacious reporting of what my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said. My hon. Friend said that Surtax payers were only affected by the highest rate of Capital Gains Tax, which is 30 per cent. If the hon. Gentleman reads HANSARD tomorrow he will find that his rather bombastic argument is based on a misquotation of what my hon. Friend said. That is why my hon. Friend left the Chamber in disgust.

Sir G. Nabarro: I disagree entirely with the hon. Member for Westhoughton (Mr. J. T. Price).

Mr. J. T. Price: The hon. Gentleman can read my hon. Friend's words.

Sir G. Nabarro: What I shall read first is the green carbon unedited copy of the speech of the hon. Member for Ashton-under-Lyne, to make certain that nothing has been corrected. I know the tricks much better than the hon. Member for Ashton-under-Lyne does. Perhaps the


hon. Member for Westhoughton thought that I was running out of steam.

Mr. Dan Jones: On a point of order, Sir Eric. Is it in order that an hon. Member's speech can be altered and, in so doing, that the hon. Member for Worcestershire, South (Sir G. Nabarro) knows the "tricks" whereby that is done?

The Chairman (Sir Eric Fletcher): It is not in order to suggest that any hon. Member makes corrections in the OFFICIAL REPORT apart from mere verbal corrections which, by custom, are recognised.

Sir G. Nabarro: That is my reading of the situation, Sir Eric. I am delighted that we are in complete unanimity on this matter. I want to return to the Capital Gains Tax after these interruptions.
Of course, the miniscule yield of this duty has a bearing on our considerations as to the way it should be amended. I turned up the Financial Statement for the year to check the figures. Last year, the Budget estimate for 1966–67, printed on page 10 of the Financial Statement, was a yield of £5 million. The out-turn was £7 million. The Financial Secretary will recall that, in answer to a Question a few weeks ago, he gave me the precise figure of £7·2 million. This year it has fallen. The estimate is £5 million and after the Budget changes it is said still to be £5 million. I wonder why it is falling!

Mr. Lubbock: I suggest that it is obvious why the yield is falling. It is because no one is making any capital gains under this Government. It is difficult enough for stocks and shares to keep where they were at the beginning of the year.

Sir G. Nabarro: I profoundly disagree. I am only an amateur punter on the Stock Exchange. When I see the Financial Times index of equities going up and down very steeply, as it has been going up and down very steeply between 284 a matter of little more than 12 months ago and 346, as it is now, I would point out that this is the sort of time when people make money on the Stock Exchange, and the Treasury is more likely to attract Capital Gains Duty on a move-

ment of the stock markets as steeply as they have moved in the last 12 months than if the stock markets remained on a plateau. I am fascinated to know the answer, having argued the ethics of Capital Gains Tax with Socialists and Fabians for 20 years or more. I remember a disputation in Coventry in 1948 with the present Leader of the House, who was trying to mislead an audience of Coventry people that it was possible to raise hundreds of millions of pounds a year by a comprehensive Capital Gains Tax. I made then the same kind of speech as I am making now.

6.15 p.m.

Wily people will always find their way around this iniquitous form of taxation, because, fundamentally, it is an inoperable tax. It is so complicated and capable of so many devious activities within the scope of the Statute that the Treasury, I fear, will never secure any substantial sum of money from it. The Financial Secretary will no doubt point to me as an arch-villain in tax evasion matters. I am nothing of the kind. But I do believe in condemning, root and branch, taxes which are so complex as to be incomprehensible to the chartered accountancy profession and to intelligent men and women who are subject to them.

I also believe, with a good deal of professional opinion behind me both in the legal and chartered accountancy professions, that the yield of this tax is going to continue to be miniscule. What are the facts? The Chancellor and Prime Minister were going round the country volubly, three years ago, and trying to bamboozle people, pointing an accusing finger at the Tory Administration of the day. They were saying that the tax was worth a revenue of £125 million a year. It was said over and over again, not just once.

Of course, uninitiated members of the general public—coal miners, engineers, artisans, labourers, agricultural workers and the remainder—who are uninitiated in complex fiscal matters, believed it. The Chancellor and the Prime Minister said, "Let us take £125 million out of the pockets of the rich."

A favourite expression of the Prime Minister's in those days was "the Cottons and the Clores". He used to impugn this and then follow it up by


saying that £125 million would be the benefit to the general bodly of taxpayers. What, therefore, should be done about it? he would ask. He said, "We shall apply it to the poor, the poverty-stricken, the families on the lowest income scales. We will take it from the rich and give it to the poor."

Where is that £125 million? It has not shown up. Neither will it show up. That is why I am attacking it today.

The Chairman: Order. We are not discussing the Capital Gains Tax in general, but an Amendment saying that the appropriate rate should be 25 per cent.

Sir G. Nabarro: Thank you, Sir Eric. If a tax is wholly bad, as I seek to demonstrate that this one is, we should remit the badness by reducing it—only by a tiny margin, but at least reducing it.
The Treasury estimate this year is £5 million, and less than last year, in the second year of collecting this tax. Why is it less? If we bring it down from 30 per cent. to 25 per cent. it would cost something less than £1 million, but I am not sure exactly how much it would cost, because the Treasury's estimates in these matters have an unhappy habit of being very wide of the mark.
I propose, and I am sure the great majority of my hon. Friends propose as well, to continue to attack this form of taxation. The Tory Party does not accept it in principle.

Mr. Lubbock: Yes, it does.

Sir G. Nabarro: I am glad to have the Liberal Party putting me on the primrose path. Does the Liberal Party wish me to give way?

Mr. Lubbock: I would remind the hon. Gentleman that it was his own Government who introduced the short-term Capital Gains Tax.

Sir G. Nabarro: Now we are getting places. The hon. Gentleman has interpolated "short-term". The Tory Party introduced short-term provisions—six months for the Stock Exchange and three years for land. That does not give a blessing to a comprehensive gains tax covering chattels of all descriptions for all time.

The Chairman: I do not want to interrupt, but we cannot go into the short-term Capital Gains Tax. We are discussing the present rate of tax and whether it should be 30 per cent. or 25 per cent.

Sir G. Nabarro: I would remind you, Sir Eric, with deep respect, that whether the rate is 30 per cent. or 25 per cent. it applies equally to the whole gamut of considerations which I have named: Stock Exchange securities, land and chattels of all descriptions.
The Tory Party, to avoid certain malpractices—people buying stocks and shares at the beginning of a Stock Exchange period and selling them before the end, which does nobody any good—consented to a form of tax at a very short-term modest level—what is now the equivalent of the betterment value within the Land Commission over three years on land—not a comprehensive Capital Gains Tax.
This year, I hope that my hon. Friends and right hon. Friends will take the view that we should condemn root and branch this form of taxation, because it is inequitable, because it militates against savings, because there are 4 million people in this country with Stock Exchange securities—and 4 million is not the tiny number of Surtax payers—because the Statute is incomprehensible, because the cost of assessment and collection by the Inland Revenue is probably greater than the whole of the £5 million estimated yield this year, so abstruse is the Statute in this context, and because this form of taxation is wholly bad and ought continuously to be condemned by a party which espouses capitalism as opposed to Socialism. The object of Socialism is to deprive the owners of property of their property.

The Chairman: The hon. Gentleman is going far wider than debate on the Amendment ought to be allowed. We are only discussing what the appropriate rate for Capital Gains Tax should be.

Sir G. Nabarro: The lower the better.
For all those reasons I hope we shall see the Treasury Bench accept this year a salutary reduction, an overdue reduction, though only a token reduction, for when we return to the benches opposite—which will be not long delayed, I hope—


it will be my sincere desire that my party will abolish this iniquitous form of taxation.

Mr. A. H. Macdonald: The hon. Member for Wycombe (Mr. John Hall) did not appear to advance any arguments precisely in support of the Amendment. I could not tell from what he said what was so horrid about the present level of this tax and so superb about the level which he proposed. He directed his arguments, such as they were, to the general nature of the tax. I thought that that was strange.
Then, when I listened to the hon. Member for Worcestershire, South (Sir G. Nabarro), I realised how wise the hon. Member for Wycombe had been, because the argument which we have heard—and I will confine myself to the Amendment before us—seemed quite extraordinary. The hon. Member for Worcestershire, South referred to his activities—successful, as I understood him to boast—on the Stock Exchange and protested that the gains he made there should be subject to tax.
I cannot see in what way that kind of activity contributes towards the economy which, in his other speeches, he is so anxious to promote. This sort of activity seems comparable to some form of gambling, and I understand the hon. Member is with me in suggesting that taxes on gambling should be significantly increased.

Sir G. Nabarro: The hon. Gentleman has unkindly and incorrectly used the word "boast". What I said, and I repeat the words, was, "I am myself a modest punter on the Stock Exchange". I did not say whether I was successful or unsuccessful, but I believe in loss leaders in the context of Capital Gains Tax to avoid a liability at least in the early stages.

Mr. Macdonald: It is unusual to hear the hon. Member opposite claiming the virtue of modesty. Perhaps it was ungracious of me to have paid attention to the tone and manner in which he spoke rather than the actual words which escaped his mouth. I believe that the hon. Member opposite is with me in suggesting that taxation upon gambling should be increased. If punting on the Stock Exchange is no more or less than

a form of gambling, then the tax applicable should be related, for example, to the tax on football pools. I see no merit whatever in the arguments advanced that the tax upon gains, or alleged gains, made by the hon. Member opposite should in any way be less than the tax that now operates upon football pools operators, which I think to be proper and just.

Mr. Lubbock: Surely the hon. Gentleman is aware that there is no taxation on football pools winnings. Two years ago, an Amendment was suggested by the Liberal Party to tax football pool winnings, but it was rejected by the hon. Gentleman's own Government.

Mr. Macdonald: It was the most ridiculous Amendment I had ever heard in the history of debates in the House of Commons. Of course there is a tax on football pools.

Mr. Lubbock: Winnings on football pools.

Mr. Macdonald: I am perfectly well aware of what the tax upon football pools is. Because it is not levied upon winnings is of no relevance in noting that it is levied upon football pools. It could equally well be levied upon winnings. There would have to be a slightly different amount, but the tax is nonetheless a tax upon money put into football pools.
I cannot accept the extraordinary arguments advanced by the hon. Members on the Liberal bench that the tax on football pools is somehow different or more meritorious than the existing state of affairs. I will not continue, or I shall be ruled out of order, much as I would like to refute those extraordinary arguments.
The simple point that I wanted to make, before I was diverted by the hon. Member for Orpington (Mr. Lubbock), was that this tax on capital gains seems entirely comparable with a tax upon gambling. I see no reason, therefore, why the level of tax should be in any way differentiated. For that reason, it appears to me that the existing level of tax is entirely appropriate.

6.30 p.m.

Mr. Lubbock: The argument of the hon. Member for Chislehurst (Mr. Macdonald) is most peculiar. First, he


says that the tax on capital gains is analogous with a tax on gambling, and then displays complete ignorance of the system of taxation on gambling. He ought to know that on the football pools people can win sums of up to £300,000 which are not treated as income in their hands and that they get away without a penny of tax, whereas with Capital Gains Tax people can pay up to 30 per cent.
If we agree that winnings on gambling on the Stock Exchange are identical with the winnings on football pools, then, in all logic, we should tax at 30 per cent. football pool prizes of £300,000, or at such reduced rates as we have in this Clause. I am sorry that the hon. Gentleman has not studied the facts before coming to the debate. If he had done so, he would not have made these ridiculous comparisons.

Mr. Macdonald: I do not want to prolong discussion on a matter which is not directly relevant, but I am perfectly well aware of how football pools are taxed. There is a tax of approximately 30 per cent. on football pools. That is an undisputed fact. To say that the people who take the winnings are not taxed is absurd. Of course they are taxed. It is simply that the tax does not fall precisely on the winnings. It falls on the total stake going into the pools, but the effect of the tax is the same.

Mr. Lubbock: Then let us take the analogy a little further. Companies in which people invest are also taxed. They pay Corporation Tax, and so on. That is the analogy with what the hon. Gentleman said about the taxation of football pools themselves. But there is a complete absence of any parallel in the final stages of taxing capital gains, Stock Exchange winnings and football pool winnings. I would have thought that that was so elementary that it must be obvious to the rest of the Committee, even if it still escapes the hon. Member for Chislehurst.
However, I know that you do not want me to develop this further, Sir Eric, so I will come to the Amendment itself and try to eschew the general remarks on the Capital Gains Tax which have tempted some hon. Members into discussing matters which are wider than the Amendment. I agree with the hon. Member

for Worcestershire, South (Sir G. Nabarro) that a reduction is necessary, but I do not think that the argument has been put to the Financial Secretary as it should have been and as it was developed in some detail two years ago.
I am not concerned with the general arguments about the merits of the Capital Gains Tax as such. I happen to be one of those who believe that a tax of this nature is a necessity, but here we are discussing only the rate and whether it should be 30 per cent. or 25 per cent. I have no doubt that the Financial Secretary will remember that when we discussed this matter two years ago I pointed out that many of the gains on which the tax would be levied would not be real and that, because of the change in the value of money, people would find themselves paying tax when in fact they had a reduced sum of money in real terms at the end of the period.
I then gave the example of medium-dated gilt-edged securities on which appreciation might be at about 2½ per cent. or 3 per cent. per annum—I gave an actual gilt-edged security as an example—with the amount of the discount on its maturity value taken over the period of years which would elapse before maturity giving a certain inevitable capital appreciation. In the context of a steady rate of inflation, such as we have had since the war, a person investing in such a security at, say, 84 and holding it until maturity then disposing of it at 100 would have made a capital gain for the purposes of the Finance Act, 1965, but, in fact, would have lost money. He would find that it was worth less than before and he would then have to pay tax at 30 per cent., or at some reduced rate if he was not a Surtax payer.
The hon. Member for Chislehurst may have misunderstood what was said by his hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) when suggesting that the Amendment would benefit only those paying Surtax, because it deals only with the maximum rate and not with the provisions for alternative charge contained in the Finance Act, 1965.

Sir G. Nabarro: I must contradict the hon. Gentleman. He is quite wrong about that. The tax applies to any chattel over £1,000 so long as the chattel is kept for longer than 12 months. If the chattel is


a mink coat at £3,000, it applies to that. Under the Amendment, the Capital Gains Tax on it would be reduced from 30 to 25 per cent.

Mr. Lubbock: The hon. Gentleman has not got it quite right. I am talking about the alternative charge to tax. I am looking at the booklet published by the Institute of Chartered Accountants, which I find easier to understand than the Finance Act itself. It says that it is provided in the Finance Act, 1965, that
If it should prove to be to the benefit of an individual for any year of assessment in any part of which he was resident in or in which he was ordinarily resident in the United Kingdom, the capital gains tax payable on his total long-term gains of that year, less losses of that year and losses brought forward, will be restricted to an amount equal to the income tax (including surtax) which would be payable if a fraction of his net gains were taxed as if it were income, instead of the whole of the net gains being taxed at the flat rate of 30 per cent. The fraction of the net gains on which the notional income tax (including surtax) will be calculated is:
where the net gains are less than £5,000, one-half of the net gains; …
He has this alternative.
I understood the hon. Member for Ashton-under-Lyne to be saying that as the alternative charge to tax had not been altered, persons who had opted for that and found it to their benefit to do so would not be advantaged by the reduction in the maximum from 30 per cent. to 25 per cent. As far as I can see, he is quite correct. But that is not a reason for rejecting the Amendment. It is a very good reason for moving another so as to bring into line these alternative charges so that they bear the same relationship to the original rates as 25 per cent. bears to 30 per cent. I am sure that it would not be beyond the wit of the hon. Member, if he agreed with that principle, to devise a suitable Amendment for the alternative.
In the meantime, I urge the Financial Secretary to look with some favour on this proposed reduction. "MacDermot's Law" has been mentioned. I remember very well the debate in which he said that because our maximum rate of Income Tax was 91¼ per cent., as compared with 70 per cent. in America, it was reasonable for us to have a separate maximum rate

of Capital Gains Tax of 30 per cent. as compared with the 25 per cent., which was the maximum rate in the United States.
At the time I thought that that was a peculiar argument, and I still think so. My main reason for asking him seriously to consider accepting the Amendment is that inflation is a much more serious problem in the United Kingdom than it has been in the United States in the past few years. Even if his contention were right and a high level of personal tax required a high level of Capital Gains Tax, "MacDermot's Law" should be applied only in real and not in money terms when money terms cause people not only to lose money when they invest in gilt-edged securities over a period of time, but, into the bargain, to add insult to injury, having to pay Capital Gains Tax as well.

Mr. J. T. Price: Under the guise of moving a token reduction of 5 per cent. in Capital Gains Tax, Opposition spokesmen have sought to raise a general opposition to the whole principle of Capital Gains Tax. I understand from the Rulings which you have already given, Sir Eric, that it would be quite out of order for me to be drawn into a general debate, but I am entitled to say that whatever the rate of Capital Gains Tax may be, hon. Members opposite, with all their expertise in the affairs of the Stock Exchange, the City of London and the manipulation of property in all its guises, must forgive me if when they attack the tax on ethical grounds and try to trump up ethical arguments, I and my hon. Friends make stiff rejoinders. We at least have taken the trouble to study not only the mechanics of this form of taxation, but the ethics of the distribution of wealth.
I listened with considerable interest and amusement and with some respect to the hon. Member for Worcestershire, South (Sir G. Nabarro). It is inevitable, and no one holds it against him, that he comes into this Committee with a bombastic, dogmatic, enunciation of all kinds of ideas that have been flowing from his active brain ever since he was a Member and probably before. But he must not expect that we swallow all those arguments hook line and sinker. We do not.
The hon. Gentleman was trying to argue that the Capital Gains Tax in its


present form was the maximum and not the universal rate. But if it produced nothing at all it has at least altered the direction in which the manipulators of financial investment were operating. The main objective for a skilful and prudent investor before we introduced this principle into our fiscal law was not to get a good high yield of dividend on a particular equity, but to so manipulate equities and other forms of property, particularly land, so that they did not attract any taxation.
This may have had a very salutary effect upon these transactions. I sometimes hear hon. Members opposite, who individually, I hold in the highest respect, arguing vehemently that there is something ethically wrong in attacking the state of affairs existing before the introduction of Capital Gains Tax. When one talks of ethics one must also consider that before this tax came into being the people who were using every technical device, with the most skilled professional guidance—of lawyers and accountants—were doing so for the main purpose of defeating the objects of this House in having certain taxation measures on the Statute Book.

The Chairman: The hon. Member has recognised that he cannot debate the ethics of the Capital Gains Tax. We can only discuss the appropriate rates.

Mr. Price: I am prepared to do that and I do not wish to detain the Committee because I can see that the Financial Secretary wishes to get on to the next business.
It is not a valid argument to say that in a moment of weakness, aberration or forgetfulness, we on his side of the Committee should agree to a small reduction of 5 per cent., because it might be justifiable in present circumstances. We are not to be taken in by that sort of thing, because this is an argument directed not against the rate of the tax, but against the very tax itself.
I am rather surprised that such an experienced campaigner as the hon. Gentleman the Member for Worcestershire, South should try to buttress up his very weak argument by saying that when we advocated the Capital Gains Tax on our election platforms we were speaking to a lot of illiterate people such as, and I took his words down, "miners, engin-

eers, labourers, and so on". These people, he said, in their deep ignorance could not understand what the Stock Exchange was about. They had voted for us in ignorance.
The hon. Gentleman must not imagine that because people who are doing useful work, and who are the foundation of the economic life of the country, miners, engineers, labourers, are to be spoken of here so disparagingly as the hon. Gentleman seems to impute. I wonder whether, in South Worcestershire, he has no one but bookmakers and stockbrokers to appeal to when he goes on to the election platform.

Sir G. Nabarro: I included farm workers and referred to agriculture and horticulture. They predominate in South Worcestershire. What the hon. Gentleman has conveniently left out of his argument, when he brought in this unfortunate word "disparaging", which I reject utterly, was that I said that these are not normally people very well versed in the complexities of capital gains provisions. The majority of Members on the benches opposite do not begin to understand what it is all about, let alone their constituents.

Mr. Price: I do not think that that has advanced modern thought very much. I am concerned with all kinds of heretical ideas that are introduced, not only by the hon. Gentleman, but by the hon. Member for Wycombe (Mr. John Hall), who even quoted the poet Pope to reinforce some of the arguments that he was using. The hon. Gentleman spoke of this as being the highest taxed country in the world. It is not true. The argument might be proven on direct taxation, but if one couples direct and indirect taxation, and makes a league of the nations, the total impact of taxation is higher in many other countries, including the United States.

6.45 p.m.

The hon. Gentleman the Member for Orpington (Mr. Lubbock) made an interesting speech. I can understand the full-blooded arguments of the hon. Gentleman the Member for Worcestershire, South and some of the hon. Gentlemen opposite, but I can never understand the half-cocked arguments of the Liberal Party. First of all, the hon. Gentleman says that he agrees in principle with the Capital Gains Tax, but


he goes on to argue, as I have so often heard argued by other members of the Liberal Party, that because inflation is a continuing process, and the nominal value of capital becomes less in relation to its purchase price, one must not have a Capital Gains Tax at all. If I am wrong, perhaps the hon. Gentleman will put me right.

This does not apply to land. There was a generation of Liberals in the days of Lloyd George—the "God gave the land to the people" brigade, whom I deeply respect and who were some of my political forebears. There have been scandalous manipulations of land needed for public works such as hospitals, schools and roads, necessary to make society efficient. Since I came to this House, 16 or 17 years ago, land in my division on which could have been bought for £30 an acre when I first became a Member is now being sold at £3,000 to £4,000 an acre for building pockethandkerchief-sized bungalows. This is the scandal about which the Liberal Party ought to be talking and fighting, not tying itself with all kinds of petty arguments about Capital Gains Tax.

Mr. Lubbock: I could have saved the hon. Gentleman's breath in the last five minutes by reminding him that in the near future the betterment levy will take over the responsibility for recouping for the community the increase in land values, and that, therefore, it will not be dealt with under this tax deduction of 30 per cent. to 35 per cent., as proposed in the Amendment. This proposal will have no effect whatever on the taxation of increased land values.

Mr. Price: That may be so. We will have to wait and see what are the effects of the betterment levy. I am quite philosophical about it. There are sure to be clever people who will find all kinds of devious methods to avoid the impact of betterment levy.
As to the general question of the capital gains on chattels, there may be a strong argument for simplifying in this respect. At the same time, there are many prudent and shrewd investors who, even though beaten on manipulating stocks and shares, will not hesitate to buy diamonds, rare works of art, antique furniture, in the hope of hedging themselves against the

effects of taxation and other things. I hope that I have put forward some points worthy of consideration by hon. Members, and I trust that the Committee will reject the Amendment.

Mr. Gower: The hon. Member for Westhoughton (Mr. J. T. Price) and the hon. Member for Ashton-under-Lyne (Mr. Sheldon) returned to the old argument that we on this side of the Committee are concerned only with reducing taxation in a fairly narrow band, particularly Surtax. I hope that they will recognise that our attitude to taxation in general is that it is too heavy and that people pay too much tax of all kinds. They must not, therefore, deem it strange that we should explore opportunities to reduce all kinds of taxation. That is the attitude of most of us. This is but one of many different kinds of taxation which we seek to reduce, though modestly.
Unlike my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro), I have no deep philosophical objection to the principle of Capital Gains Tax. I do not think that anyone on these benches can speak for all of us. There must be a great variety of opinions about the merits of such a tax. Nevertheless, I think that the hon. Member for Westhoughton will recognise that this particular tax, as introduced by his party a couple of years ago, is at a higher rate than that which obtains in countries where there is a free economy in which it has been tried. That is a matter which deserves the Committee's serious attention.
The Capital Gains Tax must be a very disappointing tax for the Government. The revenue yield from it has been very small indeed. The estimate for the next year is about £5 million, or slightly in excess of £5 million. I think that the Financial Secretary and his colleagues must recognise that there must be some reason beyond those which have been stated in the debate why the yield has been so disappointing. One is the disincentive effect on people of a tax of this percentage to sell their holdings. This is very serious. It is not desirable that investments should be frozen, or that a sum of money should be frozen in a particular shareholding for ever. In many cases, it is desirable that the holder of a shareholding or some other form of wealth


should dispose of it and that the money should flow into some other form of investment.
One of the reasons why the yield from the tax has been so very disappointing is that many people who, in other circumstances, would have sold have been disinclined to do so and to pay perhaps one-third or slightly less in tax. The Committee would not be fulfilling its duty if it did not look closely at the tax as it obtains in its present percentage. I should have thought that the hon. Member for Westhoughton, who is inclined usually to be fair in his assessments, would not think it strange that a responsible Opposition should examine carefully a tax of this kind which, even on the Government's own assessment, is very disappointing.
My hon. Friend the Member for Wycombe (Mr. John Hall) was right to point out that the tax appears to have placed an extraordinary burden on the Inland Revenue officers and that it has diverted an enormous amount of talented manpower which, perhaps, could have been used more effectively in other sectors of the economy.
I hope that the Government are considering methods of changing the tax. I should not think that anything said in the debate was a fatal objection to a modest reduction in the tax such as is called for in the Amendment. I agree with the hon. Member for Orpington (Mr. Lubbock) that if the Government could accept the principle of a reduction in the maximum rate they could also, to be fair, study the possibility of reducing the impact of the tax at the lower levels. If they did that, it would be a fillip to one particular sector of the economy.
I return to my original premise. Taxation has tended for a long time, under Governments of both parties, to be excessive. It greatly needs to be reduced.

Mr. MacDermot: Many of the speeches have been derogatory of the Capital Gains Tax, but we have heard remarkably few arguments in support of the Amendment, which is to reduce the rate from 30 to 25 per cent. We have heard that this is a complicated tax and that it throws a heavy burden on the Revenue.
I know that many Members dislike the Capital Gains Tax. In spite of that, I had always thought that the Opposition were in support in general of the principle

of taxing capital gains and having a general Capital Gains Tax. But the hon. Member for Worcestershire, South (Sir G. Nabarro) tells us that that is not so. I do not know whether the hon. Member for Wycombe (Mr. John Hall), speaking from the Opposition Front Bench, would confirm that.
In any event, what is the argument about complication and the burden on the Revenue to do with the rate? How would reducing the rate from 30 to 25 per cent. reduce the burden on the Revenue.

Mr. Robert Cooke: If the rate were moderate, presumably people would be prepared to pay it without the interminable argument which goes on in working out what should be paid.

Mr. MacDermot: If the hon. Gentleman thinks that people would argue less about paying 25 per cent. rather than 30 per cent. he is not in touch with reality.
The hon. Member for Wycombe suggested that my right hon. Friend the Chancellor of the Exchequer had had to buy off a threatened strike in the Revenue over the Capital Gains Tax. I assure the hon. Gentleman that that is not the case. There were a few foolish people who talked in terms of strike action. They very nearly prejudiced the claim which was successfully made and to which the hon. Gentleman referred.
The hon. Gentleman quoted Professor Wheatcroft's book and his criticism that the tax would not produce much revenue for a number of years and that it was complicated in its administration. I do not know whether the hon. Gentleman or Professor Wheatcroft would have preferred that we made the tax operate, as we did, only on gains since Budget day, in which case it was inevitable that the revenue would be small in the initial years and would build up to a substantial sum. I should have thought that that plainly was right, otherwise we should have a retrospective tax. Unless it is being said that it is wrong to introduce the Capital Gains Tax, it is no criticism to say that the revenue in early years will be small.
It is easy to criticise and to say that the administration of the tax is complicated. But that is the inevitable result


of trying to make the tax fair. I say without fear of denial that ours is the fairest Capital Gains Tax anywhere in the world. Part of the price to be paid for that is that its administration is complicated.
But, bearing in mind that we intend the tax to last and be a permanent feature of our system, is it not better and right that we should get the structure of it as fair as we can, even if the price in terms of work load and administration is fairly considerable, bearing in mind that, as my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said in an excellent speech, one of the reasons for the tax was to produce greater social equity so that people who made substantial increases in their wealth in the form of capital gains should not escape the tax net? It is an object of social justice which underlies this tax. That being so, it was our duty to make the tax as fair as we could.

7.0 p.m.

The hon. Member for Wycombe said, as a supposed criticism, that the tax produced less than was estimated, but he was wrong about that, as was shown by his hon. Friend the Member for Worcestershire South who quoted the figures. Our estimate of the yield last year was £5 million. The outturn was 7·2 million.

Mr. John Hall: When I gave the original estimate, and mentioned a figure of £12 million for the last completed fiscal year, I gave the original estimate given by the Chancellor in his 1965 Budget speech.

Mr. MacDermot: I do not recall the passage to which the hon. Member refers, but I confidently say that my right hon. Friend did not estimate the return for this tax within the first year or two as being £12 million. Perhaps the hon. Member is thinking of a figure which included the Corporation Tax on capital gains. That is something which we are not discussing either on the Amendment or in the figures about which we have been talking.
In dealing with the general features, we had the suggestion by the hon. Member for Worcestershire, South that this was an inoperable tax, one that people would easily be able to evade and from

which we would never be able to collect a substantial amount of revenue. I have heard the hon. Member, in his usual confident manner, make exactly the same criticism of death duties. I heard him describe it as a voluntary tax which no one need pay unless he wanted to. Last year, we collected just under £300 million by this voluntary tax, and we estimate that in the coming year we will collect over £300 million. I am not, therefore, greatly impressed with that argument.
I turn to the real question whether the rate should be 30 per cent. or 25 per cent. First, let us see who would be affected by the Amendment. My hon. Friend the Member for Ashton-under-Lyne was perfectly correct. We can all be indirectly affected, but the only people who would be directly affected by the Amendment would be Surtax payers. The hon. Member for Worcestershire, South, who, I am sorry, has left the Chamber, and who has been so abusive about the lack of understanding by my right hon. and hon. Friends concerning the tax, showed his complete ignorance by his whole argument about the way that the tax works, because he ignored the alternative basis of charge. Even when it was pointed out to him by the hon. Member for Orpington (Mr. Lubbock), he still showed that he was completely ignorant even of the alternative basis of charge, let alone how it works.

Mr. Gower: Would not the hon. and learned Gentleman agree that any reduction in the rate would tend to lessen any disincentive effect that the tax might have upon sales or transactions which in turn would attract the duty? Might it not happen that if there were a smaller disincentive effect in that respect, the revenue would be increased?

Mr. MacDermot: No, I do not accept that argument. The alternative basis of charge provides that if it is to the advantage of any individual taxpayer to have half his gains for the year up to a maximum of £5,000, plus the whole of the gains in the year in excess of £5,000, treated as an addition to his income of the year instead of being taxed at the 30 per cent. flat rate, he is entitled to elect to have it so treated. That is the alternative basis of charge.
That means, in practice, that the flat rate of 30 per cent. applies to gains accruing to a relatively small minority, to individuals with a marginal rate of tax—Income Tax plus Surtax—of 10s. in the £ or more. It applies to about 400,000 taxpayers—and that is all—assuming that all those taxpayers realise capital gains. Four hundred thousand is the greatest potential number of individuals to whom the rate can apply.
The number of taxpayers to whom it does not apply—people who actually pay tax who, if they realised capital gains, would pay not at the flat rate, but at a lesser rate—is about 19½ million taxpayers, whose marginal rate is the standard rate and who would pay at the rate of 20·5 per cent. Again, as my hon. Friend the Member for Ashton-under-Lyne pointed out, those who pay less than the standard rate—I do not have the exact figure, but from memory it is about 12 million taxpayers—will pay at less, in some cases substantially less, than the 20·5 per cent. rate.
It is, therefore, a complete fallacy for anyone to think that the usual average rate on which people pay tax on capital gains is 30 per cent. It is not. That is the rate which applies to a small minority of 400,000 Surtax payers. What we are discussing is whether their rate of Capital Gains Tax should be reduced from 30 to 25 per cent.
How do we decide what is the fair and right rate at which those wealthy people should pay tax on their capital gains? I am sorry if I disappoint the hon. Member for Wycombe in repeating some of the arguments of previous years, because we have discussed this subject thoroughly for the past two years and this is the third occasion. The arguments are the came.
I suggest that one can arrive rationally at a reasonable rate only by comparison. One can make internal comparisons with the rate which people pay on other forms of wealth and external comparison with what happens in other countries. Let us start with the internal comparisons. The theoretical basis for this tax is that it is not fair or right that people, in particular wealthy people who on the whole are those who make most of the capital gains, should be able to make increases and to realise increases in their total wealth in the form of capital gains and

escape the tax net when they would have to pay tax on increases which in law take the form of income. That is the reason for it.
The starting point, therefore, is a comparison with the rate of what those people pay on their income. When there are high rates of Income Tax and of Surtax for wealthy people, I suggest that a very low rate is not a reasonable rate. A second reason for this is to try to provide a disincentive for the sort of arrangement by which people artificially try to dress up what is income as an increase in capital. Again, if there is too great a disparity, the incentive is increased.
I repeat, as I have said in previous years, that for wealthy Surtax payers who normally pay a high rate on their income, a flat rate of 30 per cent. is a low and a moderate rate. It would be quite unreasonable, particularly in a year when we are not reducing other levels of taxation, to reduce that by 5 per cent.
In view of what I have been saying, it may be argued that the rate should be higher than 30 per cent. Indeed, my hon. Friend the Member for Chislehurst (Mr. Macdonald) argued that this should be equated with gains which people make from gambling. The short-term gains tax, which was introduced by the party opposite, in a sense does that and equates it wholly with income. It is added to income and is taxed at the Income Tax rate.
When dealing with longer-term gains, however—and some of these gains may be made over a considerable number of years—there are reasons for saying that there should be a lower rate. First, our steeply graduated rates of Income Tax and Surtax would mean a very heavy rate indeed if a person had to add the whole of his realised gains to his income for the particular year of realisation. Secondly, there is the point, which was made by the hon. Member for Orpington and also by the hon. Member for Wycombe in opening the discussion, of the inflation element which may be present in a long-term gain.
As was made clear at the outset, that was something which was taken into account. We thought that it was the right and fair way to take it into account when we were fixing the rate, and that is another reason for having this low rate of 30 per cent.
Then one can make comparisons with other countries. However, it is not right to suggest, as the hon. Member for Barry (Mr. Gower) did, that ours is the highest rate of Capital Gains Tax in the world. It is not. There are other countries with substantially higher rates. But it is not fair to make comparisons with them because of their different tax structures. The only country with a structure comparable to ours is America—

7.15 p.m.

Mr. Lubbock: Before the hon. and learned Gentleman leaves the point about inflation, can he justify the case where a person has a money gain but not a real gain and, nevertheless, is required to pay 30 per cent. on it?

Mr. MacDermot: If I took up that point, I should be going back over all the old arguments. We went into all this in great detail two years ago. Equally, there can be cases where a person finds himself brought into a higher tax bracket for Income Tax purposes when he has not made any total increase in his income in real terms.
To complete what I was saying about the international comparison and comparing our system with America's, this is where what has been referred to as "MacDermot's Law" becomes relevant.
When one compares their rate for Capital Gains Tax, which is a 25 per cent. rate, with our rate of 30 per cent., assuming that my first point is valid and that there should be a correspondence between the Capital Gains Tax rate and the rate of personal taxation of income, one cannot compare our Capital Gains Tax rationally with that of America without looking also at their rates for taxes on income.
It must be remembered, too, what is the wealth of that country as a nation, and the average levels of income there compared with the level here. When one makes that comparison, I suggest that our rate of 30 per cent., which I repeat is only the rate for Surtax payers, is a reasonable one. I hope that no one in the Committee will continue under the illusion that this is the general rate for the payment of Capital Gains Tax. It is not. The vast majority of individuals pay at a rate of 20½ per cent. or less.
I regret that there is nothing novel about my argument, because I have advanced the same reasons as have been given for the last two years. However, for those reasons, I must urge the Committee to reject the Amendment.

Mr. David Mitchell: I have been listening to the Financial Secretary very carefully. He has advanced a curious argument which perhaps can be summed up by saying that, because some of our taxes are too high, we must see that all of them are. It is an extraordinary basis on which to approach taxation on behalf of the Government.
I rise to make two points. The first of them is to pick up something said by my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) about the cost of collection of Capital Gains Tax by the Government. I want to stress the immense cost to the country in terms of skilled labour employed in private industry which is needed in accountancy and managerial skills tied up in dealing with the complicated provisions of Corporation Tax and Capital Gains Tax. The stage has been reached today when it is true to say that it can be more profitable for an industrialist or businessman to spend half a day with his accountant than to spend half a month trying to get export business.

Mr. J. T. Price: Perhaps the hon. Gentleman will tell the Committee how a reduction of 5 per cent. in the Capital Gains Tax will affect the number of skilled accountants and civil servants required to administer it. Will it reduce them, and, if so, by how many?

Mr. Mitchell: I shall come to that argument shortly. I was making the point at this stage because it had been raised earlier. The amount of work which has to be done by an accountant in valuing a share going back over past rights issues for years is amazing. However, if I pursue that point further, Mr. Jennings, you will probably rule me out of order, so perhaps I might come to the points made by the Financial Secretary.
I nearly laughed aloud when I heard him suggest that ours was the fairest form of Capital Gains Tax in the world. He actually suggested that it was as fair as it could be made.
As the hon. Member for Orpington (Mr. Lubbock) said, it is a tax on inflation. This is the first Government in history to have imposed a tax on and made a profit out of inflation. By no stroke of the imagination could it be called fair.

Mr. MacDermot: The hon. Gentleman says that we are the first Government in history to do it. He is wrong. The Americans began by having an exclusion in their tax for the inflation element, but they found that it did not work and removed it.

Mr. Mitchell: They did not have the disadvantage of a Government whose policies were as inflationary as this Government's have proved to be in practice—

The Temporary Chairman (Mr. J. C. Jennings): We are getting very wide of the Amendment. Hon. Gentlemen are tending to talk about the principle of capital gains instead of the words of the Amendment, which seeks to reduce the rate by 5 per cent. Perhaps we might now come more narrowly to the Amendment.

Mr. Mitchell: Over the past two years, we have seen a decrease in the value of money, with a rate of inflation in excess of 5 per cent., which is the amount by which we seek to reduce a rate of Capital Gains Tax. All the time since 1965 the meter has been ticking away. The Government can argue that they are only taking a small amount of money in Capital Gains Tax, but, all the time, the effect is greater and greater. The business community finds itself more tied to its existing investment, because it does not dare sell out and lose such a vast proportion of its capital.
The tax affects our farmers particularly. I represent a constituency which is partly farming, and an important factor which has to be faced is that we have a Ministry of Agriculture which wants to see larger farms, but a Treasury which, by means of Capital Gains Tax, will produce the fragmentation of farms.
If a farm is owned by a man for 20 years and inflation runs at 5 per cent. a year, without an increase in land acreage, the value on paper will have doubled, and 30 per cent. of that has to be paid out in Capital Gains Tax. The effect is

that, when that farmer dies, sells his farm or, more often, gives it to his son, he has to find cash to hand to the Treasury far in excess of any savings which he may have made in running his farm over that period of time. He has to sell off land, which produces the fragmentation of farms when they should be coming together into larger units. This is a serious matter to the farming community, to the small businessman and to the business community in general.
There is one other aspect which has not been mentioned. The Government and the country know of the desperate need for Britain to increase her investments in the modernisation of her industries. But how can capital be accumulated to invest in modernisation with an excessive rate of Capital Gains Tax which reduces people's incentive to save and reduces the formation of the capital which is so desperately needed by the nation?

Mr. John Hall: We have had a useful, and perhaps rather wide, debate. I apologise for rising when I know that several of my hon. Friends want to take part in the debate, but I think that an opportunity may occur for them to speak on following Amendments.
The Financial Secretary did not disappoint me. I rather fancied that we would hear the same argument that we heard on two previous occasions, despite the fact that I tried to avoid deploying the same argument again, and concentrated on the element of wealth tax which forms part of the Capital Gains Tax as it now exists.
As far as I can understand it, the argument has come down to the basic one that as the rate of 30 per cent. applies to only a comparatively few taxpayers—the Financial Secretary said that 400,000 surtax payers represented the extent of the problem—and as the rate of Surtax in this country is very high, indeed higher than it is in America, it is right that the rate of Capital Gains Tax should be high as well. I find it hard to understand—and I am sure that my hon. Friends do, too—why the mere fact that only 400,000 taxpayers are involved means that we should do nothing to help them. There are many instances in which we help a small section of taxpayers, yet when it comes to those who pay the highest rate


of tax, apparently it is somehow immoral to suggest that they should be given relief.
On many occasions we have heard this comparison of taxes, and about the operation of "MacDermot's Law". We find it hard to accept this law. It means, I suppose, that if Surtax is increased—which under the present Government is quite likely—we shall have to increase the rate of Capital Gains Tax at the same time because the two will have to be brought into relation in some way. It means that as far as can be arranged we should increase the taxes paid by those paying the highest rate of Surtax. They should be required to pay a higher local rate of tax. They should, as far as could be arranged, pay a higher rate of national

taxation that is paid by those who pay Income Tax and Surtax at a lower rate. This is a difficult argument to sustain, and I do not propose to take up time discussing it any further.

I think that I shall be expressing the wish of my hon. Friends if I say that we cannot accept the arguments which have been advanced by the Financial Secretary, just as we were not able to accept them on previous occasions. I am sure that I am expressing the wish of my right hon. and hon. Friends when I say that we ought to take the matter to a Division to express our views in the Lobby.

Question put, That those words be there added:—

The Committee divided: Ayes 121, Noes 185.

Division No. 359.]
AYES
[7.25 p.m.


Allason, James (Hemel Hempstead)
Harris, Reader (Heston)
Page, Graham (Crosby)


Bell, Ronald
Harrison, Col. Sir Harwood (Eye)
Page, John (Harrow, W.)


Biffen, John
Harvey, Sir Arthur Vere
Pardoe, John


Biggs-Davison, John
Hastings, Stephen
Pearson, Sir Frank (Clitheroe)


Bottom, Sir Clive
Heald, Rt. Hn. Sir Lionel
Percival, Ian


Boyle, Rt. Hn. sir Edward
Heseltine, Michael
Pike, Miss Mervyn


Braine, Bernard
Higgine, Terence L.
Pink, R. Bonner


Brinton, Sir Tatton
Hiley, Joseph
Pym, Francis


Bromley-Davenport, Lt.-Col. Sir Walter
Hill, J. E. B.
Rawlinson, Rt. Hn. Sir Peter


Brown, Sir Edward (Bath)
Holland, Philip
Renton, Rt. Hn. Sir David


Bruce-Gardyne, J.
Hooson, Emlyn
Ridley, Hn. Nicholas


Buck, Antony (Colchester)
Hordern, Peter
Rippon, Rt. Hn. Geoffrey


Carr, Rt. Hn. Robert
Hornby, Richard
Rodgers, Sir John (Sevenoaks)


Chichester-Clark, R.
Howell, David (Guildford)
Russell, Sir Ronald


Cooke, Robert
Hunt, John
Sharples, Richard


Cooper-Key, Sir Neill
Jenkin, Patrick (Woodford)
Shaw, Michael (Sc'b'gh &amp; Whitby)


Craddock, Sir Beresford (Spelthorne)
Jopling, Michael
Sinclair, Sir George


Cunningham, Sir Knox
King, Evelyn (Dorset, S.)
Smith, John


Currie, G. B. H.
Kitson, Timothy
Summers, Sir Spencer


Dance, James
Knight, Mrs. Jill
Taylor, Sir Charles (Eastbourne)


Davidson, James(Aberdeenshire, W.)
Lancaster, col. C. G.
Taylor, Edward M.(G'gow,cathcart)


Dean, Paul (Somerset, H.)
Langford-Holt, Sir John
Taylor, Frank (Moss Side)


Deedes, Rt. Hn. W. F. (Ashford)
Loveys, W. H.
Temple, John M.


Doughty, Charles
McAdden, Sir Stephen
Thatcher, Mrs. Margaret


Elliott, R.W. (N'c'tle-upon-Tyne, N.)

Turton, Rt. Hn. R. H.


Emery, Peter
MacArthur, Ian
van Straubenzee, W. R.


Errington, Sir Eric
Macleod, Rt. Hn. Iain
Vaughan-Morgan, Rt. Hn. Sir John


Eyre, Reginald
McMaster, Stanley
Walker, Peter (Worcester)


Fisher, Nigel
Marten, Neil
Walker-Smith, Rt. Hn. Sir Derek


Fletcher-Cooke, Charles
Maude, Angus
Wall, Patrick


Fortescue, Tim
Mawby, Ray
Ward, Dame Irene


Gilmour, Ian (Norfolk, C.)
Maxwell-Hyslop, R. J.
Weatherill, Bernard


Glover, Sir Douglas
Maydon, Lt.-Cmdr. S. L. C.
Webster, David


Glyn, Sir Richard
Mills, Stratton (Belfast, N.)
Wells, John (Maidstone)


Goodhart, Philip
Miscampbell, Norman
Whitelaw, Rt. Hn. William


Cower, Raymond
More, Jasper
Wills, Sir Gerald (Bridgwater)


Grieve, Percy
Murton, Oscar
Wilson, Geoffrey (Truro)


Grimond, Rt. Hn. J.
Nabarro, Sir Gerald
Wolrige-Gordon, Patrick


Gurden, Harold
Noble, Rt. Hn. Michael



Hall, John (Wycombe)
Nott, John
TELLERS FOR THE AYES:


Hall-Davis, A. G. F.
Onslow, Cranley
Mr. Anthony Grant and


Harris, Frederic (Croydon, N.W.)
Osborne, Sir Cyril (Louth)
Mr. David Mitchell.




NOES


Albu, Austen
Beaney, Alan
Booth, Albert


Allaun, Frank (Salford, E.)
Bence, Cyril
Boyden, James


Allen, Scholefield
Benn, Rt. Hn. Anthony Wedgwood
Braddock, Mrs. E. M.


Atkins, Ronald (Preston, N.)
Bidwell, Sydney
Bray, Dr. Jeremy


Atkinson, Norman (Tottenham)
Binns, John
Brown, Bob(N'c'tle-upon-Tyne, W.)


Bagier, Gordon A. T.
Bishop, E. S.
Buchanan, Richard (G'gow, Sp'burn)


Barnett, Joel
Blackburn, F.
Callaghan, Rt. Hn. James




Carmichael, Neil
Howarth, Robert (Bolton, E.)
Page, Derek (King's Lynn)


Carter-Jones, Lewis
Hoy, James
Paget, R. T.


Castle, Rt. Hn. Barbara
Huckfield, L.
Pannell, Rt. Hn. Charles


Cos, Denis
Hughes, Rt. Hn. Cledwyn (Anglesey)
Parker, John (Dagenham)


Coleman, Donald
Hughes, Hector (Aberdeen, N.)
Pavitt, Laurence


Concannon, J. D.
Hynd, John
Pearson, Arthur (Pontypridd)


Conlan, Bernard
Irvine, A. J. (Edge Hill)
Peart, Rt. Hn. Fred


Craddock, George (Bradford, S.)
Jackson, Peter M. (High Peak)
Pentland, Norman


Crawshaw, Richard
Johnson, James (K'ston-on-Hull, W.)
Perry, George H. (Nottingham, S.)


Cronin, John
Jones, Dan (Burnley)
Prentice, Rt. Hn. R. E.


Dalyell, Tam
Judd, Frank
Price, Christopher (Perry Barr)


Davidson, Arthur (Accrington)
Kelley, Richard
Price, Thomas (Westhoughton)


Davies, Dr. Ernest (Stretford)
Kerr, Russell (Feltham)
Pursey, Cmdr. Harry


Davies, Harold (Leek)
Lee, John (Reading)
Randall, Harry


Delargy, Hugh
Lewis, Ron (Carlisle)
Robinson, W. O. J. (Walth'stow,E.)


Dempsey, James
Lomas, Kenneth
Rogers, George (Kensington, N.)


Dewar, Donald
Luard, Evan
Ross, Rt. Hn. William


Diamond, Rt. Hn. John
Lyon, Alexander W. (York)
Rowlands, E. (Cardiff, N.)


Dickens, James
McBride, Neil
Shaw, Arnold (Ilford, S.)


Dobson, Ray
McCann, John
Sheldon, Robert


Doig, Peter
MacColl, James
Silkin, Rt. Hn. John (Deptford)


Dunwoody, Mrs. Gwyneth (Exeter)
MacDermot, Niall
Silverman, Sydney (Nelson)


Dunwoody, Dr. John (F'th &amp; C'b'e)
Macdonald, A. H.
Slater, Joseph


Ellis, John
Mackenzie, Gregor (Rutherglen)
Small, William


English, Michael
Mackie, John
Spriggs, Leslie


Ennals, David
Maclennan, Robert
Stewart, Rt. Hn. Michael


Ensor, David
McMillan, Tom (Glasgow, C.)
Swain, Thomas


Evans, Albert (Islington, S.W.)
MacPherson, Malcolm
Swingler, Stephen


Faulds, Andrew
Mallalieu, E. L. (Brigg)
Symonds, J. B.


Finch, Harold
Mallalieu, J.P.W.(Huddersfield, E.)
Taverne, Dick


Fletcher, Raymond (Ilkeston)




Fletcher, Ted (Darlington)
Manuel, Archie
Thomson, Rt. Hn. George


Floud, Bernard
Mapp, Charles
Thornton, Ernest


Foot, Sir Dingle (Ipswich)
Marquand, David
Tinn, James


Ford, Ben
Marsh, Rt. Hn. Richard
Tomney, Frank


Freeson, Reginald
Mason, Roy
Tuck, Raphael


Galpern, Sir Myer
Maxwell, Robert
Urwin, T. W.


Gordon Walker, Rt. Hn. P. C.
Millan, Bruce
Wainwright, Edwin (Dearne Valley)


Gourlay, Harry
Miller, Dr. M. S.
Walker, Harold (Doncaster)


Gregory, Arnold
Mitchell, R. C. (S'th'pton, Test)
Wallace, George


Grey, Charles (Durham)
Moonman, Eric
Watkins, David (Consett)


Griffiths, David (Rother Valley)
Morgan, Elystan (Cardiganshire)
Watkins, Tudor (Brecon &amp; Radnor)


Griffiths, Rt. Hn. James (Llanelly)
Morris, Alfred (Wythenshawe)
Wellbeloved, James


Hale, Leslie (Oldham, W.)
Morris, Charles R. (Openshaw)
Willey, Rt. Hn. Frederick


Hamilton, James (Bothwell)
Morris, John (Aberavon)
Williams, Alan (Swansea, W.)


Hamilton, William (Fife, W.)
Moyle, Roland
Williams. Alan Lee (Hornchurch)


Hamling, William
Mulley, Rt. Hn. Frederick
Williams, W. T. (Warrington)


Hannan, William
Nowens, Stan
Wilson, William (Coventry, S.)


Harper, Joseph
Noel-Baker, Rt.Hn.Philip(Derby,S.)
Winnick, David


Harrison, Walter (Wakefield)
Oakes, Gordon
Winterbottom, R. E.


Hart, Mrs. Judith
Ogden, Eric
Woof, Robert


Haseldine, Norman
O'Malley, Brian
Yates, Victor


Hazell, Bert
Oram, Albert E.



Henig, Stanley
Orbach, Maurice
TELLERS FOR THE NOES:


Herbison, Rt. Hn. Margaret
Orme, Stanley
Mr. Ioan L. Evans and


Hooley, Frank
Oswald, Thomas
Mr. Ernest Armstrong.


Howarth, Harry (Wellingborough)
Owen, Dr. David (Plymouth, S'tn)

Question proposed, That the Clause stand part of the Bill.

The Temporary Chairman: I think that it would be for the convenience of the Committee if I put this Question without discussion, the reason being that the Clause merely adds Schedule 13 to the Bill and that anything that could be said on the Question, "That the Clause stand part of the Bill" should be able to be said on the various Amendments to the Schedule. I should be grateful if the Committee could meet me in that regard.

Mr. Nott: On a point of order. The point that I wanted to raise concerns the statement of the Financial Secretary that the 30 per cent, rate applied only to

Surtax payers. I shall certainly raise the question when we debate the Schedule if you wish, Mr. Jennings, but I would have thought that it applied more properly to the Clause.

The Temporary Chairman: Of course it does, but if I give way may I have an assurance from the hon. Member that his speech will be brief?

Mr. Nott: I shall certainly be brief—

Mr. MacDermot: I fail to see how any question which is relevant to the rate of tax can be relevant to the Question, "That the Clause stand part of the Bill".

The Temporary Chairman: The unfortunate thing is that it is not relevant to


the Schedule either. I deliberately did not see the hon. Member when he rose, but I am prepared to allow him to make a brief speech on this point, provided that my generosity is not taken advantage of.

Mr. Nott: I shall not take advantage of your generosity, Mr. Jennings. Due to a misunderstanding at the end of the debate on the previous Amendment I did not have an opportunity of putting the point to the Financial Secretary. It is an extremely important one. The argument put forward by the hon. and learned Gentleman is utterly misleading. Having made several comments about the speeches of my hon. Friends, he went on to say that the argument was relevant only where a member of the public paid Surtax. I suggest that that is completely misleading.
Let us suppose that, every year, a young executive—not a Surtax payer—earning £2,000 a year puts aside, on his after-tax income, £500. The day comes when he needs to sell the I.C.I. shares—let us say—which he has bought with the £500. He wants to sell them to buy a house. He then becomes a Surtax payer for the first and only time in his life. In that case he then as to pay a 30 per cent. rate of Capital Gains Tax. For the Financial Secretary to say that my hon. Friends were making a misleading point is in itself misleading.
Let us take another case of a young company executive with an option in a company. Year by year he is waiting for his option to be called. The day comes when it is, and in that one year he makes a capital gain, on which he has to pay tax at the rate of 30 per cent. It is not correct to imply that the 30 per cent. rate applies only to Surtax payers it would apply only to them if people with capital gains always sold those capital gains bit by bit, year by year, but that is often quite impracticable.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Orders of the Day — Schedule 13.—(CAPITAL GAINS.)

Mr. MacDermot: I beg to move Amendment No. 174, in page 81, line 18, after the first 'tax', to insert 'capital gains tax'.
This Amendment corrects in favour of the taxpayer a drafting error in paragraph 10. As at present drafted it provides that a payment by a nonresident company of tax charged on a shareholder by virtue of Section 41(2) is not for the purpose of Income Tax or Corporation Tax to be regarded as a payment to that person. It was overlooked that this had the effect of converting it into a capital distribution made by the company and, as such, becoming generally chargeable to Capital Gains Tax in the hands of the individual, though not in the hands of corporate shareholders.
This was not the intention. The purpose of the Amendment is to correct the error and to ensure that Capital Gains Tax is also excluded.

Amendment agreed to.

Mr. John Hall: I beg to move Amendment No. 180, in page 81, line 20, at the end to insert:

Estate Duty

11. In section 26 of the Finance Act 1965 subsections (1) and (2) shall be deleted and the following inserted:—

'(1) In determining the amount of estate duty payable on a death allowance shall be made for any capital gains tax chargeable in consequence of the death and, in determining the value of the estate for the purposes of estate duty an allowance shall be made for any capital gains tax owed by the deceased.
(2) In determining the amount of estate duty payable by reference to settled property passing on a death, whether it continues to be settled property or not, an allowance shall be made for any capital gains tax chargeable in consequence of the death in respect of the settled property, so far as that tax falls to be paid out of the property so passing or to be borne by any person to whom the property so passes for any beneficial interest in possession'.

This matter has not be debated since the first Capital Gains Tax debates in May, 1965. The Amendment would provide that the whole amount of tax paid would be allowed as relief against claim for Estate Duty. The debate on a similar Amendment in 1965 came towards the end of a series of Estate Duty Amendments. The arguments were directed towards the adverse effect of imposing what amounts to double taxation on an estate at death.

A telling contribution was made on that occasion by an hon. Member who said:
The Financial Secretary will he relieved to know that I propose to express strong


support for him. It is true that it will take the form of inviting the Government to drop the whole proposition of making Capital Gains Tax payable on death. But I think that, on reflection, they will come to the conclusion that there is a good deal to their advantage in the invitation, which they may well accept, to be big about this and not merely to content themselves with a useful Amendment, but to throw out the whole miserable idea of bringing Capital Gains Tax to bear on death.

The hon. Gentleman went on:
I have spoken to many persons of all shades of political opinion and all parties about death duties, and I have yet to meet anybody who does not regard the present level of duty on estates of all sizes, big and small, as being already at a rate so penal that they could not conceivably with equity be increased."—[OFFICIAL REPORT, 26th May, 1965; Vol. 713, c. 638.]
The hon. Member continued in that strain for several columns.

I am, of course, quoting from the hon. Member for Manchester, Cheetham (Mr. Harold Lever), who is now the Joint Under-Secretary of State for Economic Affairs. I can well understand his being moved to the Treasury Bench, because his criticisms from the back benches were becoming so telling that some way had to be found of shutting him up, and this was as good a way as any. Of course, he was quite right: it is wrong to impose Capital Gains Tax on top of what he described as the "most ruthless, penal and progressive rates" of Estate Duty.

Various examples of the effect of the tax on small businesses were given in that debate. I do not want to repeat them all, but one illustrates its effect on top of Estate Duty. It was given in column 635–6 of the same date—that of a business started by a man with £1,000 and built up to a value of £20,000. The Financial Secretary will be aware of the example. As a result, on death, there was a capital gain of £19,000 and, after allowing for the £5,000, tax was payable on £14,000, and amounted to £4,200.

Therefore, the estate on which Estate Duty was calculated would be £15,800, or the original value less the tax paid, on which would be paid £1,580 in death duties, totalling £5,780, Capital Gains Tax and Estate Duty combined.

However, if a man inherited £20,000 in assets and did nothing about them so that they did not change in value, on his death, his executors would pay only £2,400 on his estate. Although both

amounts are exactly the same, the only difference is that the estate of the first man, who had worked hard and built up a business from small beginnings to £20,000, would suffer a charge of £5,780, and, that of the second man, who had merely lived on the interest of his assets, would bear only £2,400.

I have always understood, from debates on the subject over several years, that Capital Gains Tax was not imposed fundamentally to raise revenue—if it was, it has been very disappointing—but to give the impression at least that the Government were promoting social justice, and also to help to sell the conception of an incomes policy. If it was designed to remove a sense of injustice between a man living on taxed income and one living on the proceeds of capital appreciation, surely it was not designed to increase the tax on the dead, which does so much harm to their families and dependants, or deliberately to discourage savings, which, in its present form, it must do.

If the tax is to remain as it is, the only other way of reducing the impact on death is to reduce Estate Duty. If Estate Duty is to remain as it is, then surely, in equity, this Amendment should be accepted.

7.45 p.m.

Mr. MadDermot: I do not think that the hon. Member for Wycombe (Mr. John Hall) will be surprised if I say that I must advise the Committee to reject the Amendment. As he said, it is similar to one which we discussed in May, 1965. In his admirably brief and clear speech, the hon. Gentleman made clear the Amendment's purpose—to try to overcome the effect of death being an occasion of charge to Capital Gains Tax. That is what he dislikes. In a great many cases, the Amendment would eliminate liability for the tax altogether on death.
The cost of the Amendment ultimately, as Capital Gains Tax builds up to its full amount, could be substantial about £5 million. Normally, Capital Gains Tax charged on gains at death will be less than the Estate Duty on the whole value of the property. As the hon. Gentleman said, the first £5,000 is of course, exempt, so the allowance of the tax against the duty, which is what the Amendment proposes, would in effect cancel out the Capital Gains Tax charge.
This leads to the principle for making death an occasion of charge, to use the horrible legalistic language. The general principle is that we think that it is right to charge the tax when capital gains are realised and that gains are realised in general when the asset is transferred, whether voluntarily, as by sale or by gift, or involuntarily, as by death and inheritance.
If we were to make an exception in the case of death, we should undermine the tax in important respects and produce injustices. There would be an indefensibly different result in the case of heirs of people who had exactly similar properties, except that one of the deceased had switched his assets shortly before death and the other had not.
An example is that of two people owning property which originally cost £100,000 but then appreciated in value to £150,000. In one case, the owner sells the property and reinvests shortly before his death. In the other case, the owner does not. If the Amendment were accepted—I need not go into all the figures, and perhaps the Committee will take it from me—the result in the second case would be that the heirs to the net estate would inherit £7,500 more than would the heirs of the man who had reinvested his assets shortly before death, the reason being that, under the Amendment, liability to Capital Gains Tax in the second case would be set off against the Estate Duty whereas in the first case liability to Capital Gains Tax would have arisen shortly before the death and would not have been set off.
This shows the real danger of exempting death from being an occasion of charge to Capital Gains Tax. We have the experience of America to act as a warning in this respect. There is no liability to charge on death in America, and this is known among tax experts there, significantly, as the death gap. It enables large fortunes to be transmitted from generation to generation without any liability to Capital Gains Tax arising, which we at least on this side would regard as socially inequitable, and it also has a stultifying effect economically because it provides a great disincentive to reinvestment. In order to benefit from the death gap many wealthy people will

not, and do not, reinvest so as to avoid liability to capital gains tax.
On both general economic grounds and social grounds, therefore, and to preserve the purpose of the tax, we think it right, as we said at the outset, that death should be an occasion of charge, and we would think it wrong to undermine that principle by an Amendment of this kind.

Mr. Frederic Harris: Will the Financial Secretary deal with the specific case put to him by my hon. Friend the Member for Wycombe (Mr. John Hall)? Would he comment on that case, which seems an extraordinarily good one to support our argument?

Mr. MacDermot: The hon. Gentleman put an extreme case. It was to meet cases of that kind that we made several concessions in the 1965 Act, one being the £5,000 exemption on death, another being a provision for a similar exemption on retirement, another being a provision for deferment of liability in the case of transfer of assets, which was to help small businesses. Moreover, in the case of persons who are, relatively speaking, small businessmen—the kind of case we are considering—the taxpayer would in many circumstances have the benefit of the alternative basis of charge which we discussed a few minutes ago.

Mr. John Hall: The hon. and learned Gentleman, in detailing the small concessions which were made as the result of the many Amendments and criticisms which we put in 1965, failed to answer the point put to him by my hon. Friend the Member for Croydon, North-West (Mr. Frederic Harris). The figures I gave still largely apply. I took account of the £5,000 concession in making my calculation.
The hon. and learned Gentleman said that the principle behind the Capital Gains Tax is that the gain should be charged when the assets are realised. So far as I know, there is no other case where an asset is realised and a chargeable gain results where the asset is subject also to another and crippling tax; yet this is what happens with assets on death when Estate Duty has to be paid in addition.
The hon. and learned Gentleman referred to the American experience and what is described, appropriately enough,


as the death gap. He pointed out that that experience seemed to indicate that there was a disincentive to reinvestment. I understand that the death gap has operated in American fiscal law for a very long time, and there has been no indication of a proposal to change it. If it really had ill effects on the American economy in so far as it discouraged reinvestment on a large scale, measures would have been taken to correct it.
This has not been done, and the reason is that the Americans appreciate that, whatever small effect there might be by way of disincentive, the overriding effect of double taxation is to produce considerable injustice and a great burden on death

on the heirs of an individual whose estate is subject to both Capital Gains Tax and Estate Duty. I speak subject to correction, but I understand that the rates of estate duty in America are a good deal lower than ours, so there is even less reason in this country for imposing both taxes on death.

The hon. and learned Gentleman's reply is no more satisfactory now than it was two years ago. I advise my right hon. and hon. Friends to divide the Committee.

Question put, That those words be there inserted:

The Committee divided: Ayes 121, Noes 186.

Division No. 360.]
AYES
[7.57 p.m.


Allason, James (Hemel Hempstead)
Harris, Reader (Heston)
Page, John (Harrow, W.)


Bell, Ronald
Harrison, Col. Sir Harwood (Eye)
Pardoe, John


Biffen, John
Hastings, Stephen
Pearson, Sir Frank (Clitheroe)


Biggs-Davison, John
Heald, Rt. Hn. Sir Lionel
Percival, Ian


Bossom, Sir Clive
Heseltine, Michael
Pike, Miss Mervyn


Boyle, Rt. Hn. Sir Edward
Higgins, Terence L.
Pink, R. Bonner


Braine, Bernard
Hiley, Joseph
Pym, Francis


Brinton, Sir Tatton
Hill, J. E. B.
Rawlinson, Rt. Hn. Sir Peter


Bromley-Davenport, Lt. -Col. Sir Walter
Holland, Philip
Ronton, Rt. Hn. Sir David


Brown, Sir Edward (Bath)
Hooson, Emlyn
Ridley, Hn. Nicholas


Bruce-Gardyne, J.
Hordern, Peter
Rippon, Rt. Hn. Geoffrey


Buck, Antony (Colchester)
Hornby, Richard
Rodgers, Sir John (Sevenoaks)


Carr, Rt. Hn. Robert
Howell, David (Guildford)
Russell, Sir Ronald


Chichester-Clark, R.
Hunt, John
Sharpies, Richard


Cooke, Robert
Iremonger, T. L.
Shaw, Michael (Sc'b'gh &amp; Whitby)


Craddock, Sir Beresford (Spelthorne)
Jenkin, Patrick (Woodford)
Sinclair, Sir George


Cunningham, Sir Knox
Jopling, Michael
Smith, John


Currie, G. B. H.
Kaberry, Sir Donald
Steel, David (Roxburgh)


Dance, James
King, Evelyn (Dorset, S.)
Summers, Sir Spencer


Davidson, James(Aberdeenshire, W.)
Kitson, Timothy
Taylor, Sir Charles (Eastbourne)


Dean, Paul (Somerset, N.)
Knight, Mrs. Jill
Taylor, Edward M.(G'gow, Cathcart)


Deedes, Rt. Hn. W. F. (Ashford)
Lancaster, Col. C. G.
Taylor, Frank (Moss Side)


Doughty, Charles
Langford-Holt, Sir John
Temple, John M.


Elliott, R.W.(N'c'tle-upon-Tyne,N.)
Loveys, W. H.
Thatcher, Mrs. Margaret


Emery, Peter
Lubbock, Eric
Turton, Rt. Hn. R. H.


Errington, Sir Eric
McAdden, Sir Stephen
van Straubenzee, W. R.


Eyre, Reginald
MacArthur, Ian
Walker, Peter (Worcester)


Fisher, Nigel
Macleod, Rt. Hn. Iain
Walker-Smith, Rt. Hn. Sir Derek


Fletcher-Cooke, Charles
McMaster, Stanley
Wall, Patrick


Fortescue, Tim
Marten, Neil
Ward, Dame Irene


Gilmour, Ian (Norfolk, C.)
Maude, Angus
Weatherill, Bernard


Glover, Sir Douglas
Mawby, Ray
Webster, David


Glyn, Sir Richard
Maxwell-Hyslop, R. J.
Wells, John (Maidstone)


Goodhart, Philip
Mills, Stratton (Belfast, N.)
Whitelaw, Rt. Hn. William


Goodhew, Victor
More, Jasper
Wills, Sir Gerald (Bridgwater)


Gower, Raymond
Murton, Oscar
Wilson, Geoffrey (Truro)


Grieve, Percy
Mabarro, Sir Gerald
Wolrige-Gordon, Patrick


Grimond, Rt. Hn. J.
Noble, Rt. Hn. Michael



Gurden, Harold
Nott, John
TELLERS FOR THE AYES:


Hall, John (Wycombe)
Onslow, Cranley
Mr. Anthony Grant and


Hall-Davis, A. G. F.
Osborne, Sir Cyril (Louth)
Mr. David Mitchell.


Harris, Frederic (Croydon, N.W.)
Page, Graham (Crosby)





NOES


Albu, Austen
Binns, John
Callaghan, Rt. Hn. James


Allaun, Frank (Salford, E.)
Bishop, E. S.
Carmichael, Neil


Allen, Scholefield
Blackburn, F.
Carter-Jones, Lewis


Atkins, Ronald (Preston, N.)
Booth, Albert
Castle, Rt. Hn. Barbara


Atkinson, Norman (Tottenham)
Boyden, James
Coe, Denis


Bagier, Gordon A. T.
Braddock, Mrs. E. M.
Coleman, Donald


Barnett, Joel
Bray, Dr. Jeremy
Concannon, J. D.


Beaney, Alan
Brown, Bob (N'c'tle-upon-Tyne, W.)
Conlan, Bernard


Bence, Cyril
Buchan, Norman
Craddock, George (Bradford, S.)


Bidwell, Sydney
Buchanan, Richard (G'gow, Sp'burn)
Crawshaw, Richard




Cronin, John
Irvine, A. J. (Edge Hill)
Pavitt, Laurence


Dalyell, Tam
Jackson, Peter M. (High Peak)
Pearson, Arthur (Pontypridd)


Davidson, Arthur (Accrington)
Johnson, James (K'ston-on-Hull, W.)
Peart, Rt. Hn. Fred


Davies, Dr. Ernest (Stretford)
Jones, Dan (Burnley)
Pentland, Norman


Davies, Harold (Leek)
Judd, Frank
Perry, George H. (Nottingham, S.)


Delargy, Hugh
Kelley, Richard
Prentice, Rt. Hn. R. E.


Dempsey, James
Kerr, Russell (Feltham)
Price, Christopher (Perry Barr)


Dewar, Donald
Lee, John (Reading)
Price, Thomas (Westhoughton)


Diamond, Rt. Hn. John
Lewis, Ron (Carlisle)
Pursey, Cmdr. Harry


Dickens, James
Lomas, Kenneth
Randall, Harry


Dobson, Ray
Luard, Evan
Roberts, Albert (Normanton)


Doig, Peter
Lyon, Alexander W. (York)
Robinson, W. O. J. (Walth'stow, E.)


Dunwoody, Dr. John (F'th &amp; C'b'e)
McBride, Neil
Roebuck, Roy


Ellis, John
McCann, John
Rogers, George (Kensington, N.)


English, Michael
MacColl, James
Ross, Rt. Hn. William


Ennals, David
MacDermot, Niall
Rowlands, E. (Cardiff, N.)


Ensor, David
Macdonald, A. H.
Shaw, Arnold (Ilford, S.)


Evans, Albert (Islington, S.W.)
Mackenzie, Gregor (Rutherglen)
Sheldon, Robert


Evans, Ioan L. (Birm'h'm, Yardley)
Mackie, John
Silkin, Rt. Hn. John (Deptford)


Faulds, Andrew
Maclennan, Robert
Silverman, Julius (Aston)


Finch, Harold
McMillan, Tom (Glasgow, C.)
Silverman, Sydney (Nelson)


Fletcher, Raymond (Ilkeston)
MacPherson, Malcolm
Slater, Joseph


Fletcher, Ted (Darlington)
Mallalieu, E. L. (Brigs)
Small, William


Foot, Sir Dingle (Ipswich)
Mallalieu, J.P.W.(Huddersfield, E.)
Spriggs, Leslie


Ford, Ben
Manuel, Archie
Stewart, Rt. Hn. Michael


Freeson, Reginald
Mapp, Charles
Swain, Thomas


Galpern, Sir Myer
Marquand, David
Swingler, Stephen


Gordon Walker, Rt. Hn. P.C.
Marsh, Rt. Hn. Richard
Symonds, J. B.


Gregory, Arnold
Maxwell, Robert
Taverne, Dick


Grey, Charles (Durham)
Millan, Bruce
Thomson, Rt. Hn. George


Griffiths, David (Rother Valley)
Miller, Dr. M. S.
Thornton, Ernest


Griffiths, Rt. Hn. James (Llanelly)
Mitchell, R. C. (S'th'pton, Test)
Tinn, James


Hale, Leslie (Oldham, W.)
Moonman, Eric
Tomney, Frank


Hamilton, James (Bothwell)
Morgan, Elystan (Cardiganshire)
Tuck, Rahpael


Hamilton, William (Fife, W.)
Morris, Alfred (Wythenshawe)
Urwin, T. W.


Hamling, William
Morris, Charles R. (Openshaw)
Wainwright, Edwin (Dearne Valley)


Hannan, William
Morris, John (Aberavon)
Walker, Harold (Doncaster)


Harper, Joseph
Moyle, Roland
Wallace, George


Harrison, Walter (Wakefield)
Mulley, Rt. Hn. Frederick
Watkins, David (Consett)


Hart, Mrs. Judith
Newens, Stan
Watkins, Tudor (Brecon &amp; Radnor)


Haseldine, Norman
Noel-Baker, Rt.Hn.Philip(Derby,S.)
Wellbeloved, James


Hazell, Bert
Oakes, Gordon
Willey, Rt. Hn. Frederick


Henig, Stanley
Ogden, Eric
Williams, Alan (Swansea, W.)


Herbison, Rt. Hn. Margaret
O'Malley, Brian
Williams, Alan Lee (Hornchurch)


Hooley, Frank
Oram, Albert E.
Williams, W. T. (Warrington)


Houghton, Rt. Hn. Douglas
Orbach, Maurice
Wilson, William (Coventry, S.)


Howarth, Harry (Wellingborough)
Orme, Stanley
Winnick, David


Howarth, Robert (Bolton, E.)
Oswald, Thomas
Winterbottom, R. E.


Hoy, James
Owen, Dr. David (Plymouth, S'tn)
Woof, Robert


Huckfield, L.
Page, Derek (King's Lynn)
Yates, Victor


Hughes, Rt. Hn. Cledwyn (Anglesey)
Paget, R. T.



Hughes, Hector (Aberdeen, N.)
Pannell, Rt. Hn. Charles
TELLERS FOR THE NOES:


Hynd, John
Parker, John (Dagenham)
Mr. Harry Gourlay and




Mr. Ernest Armstrong.

8.0 p.m.

Mr. John Hall: I beg to move Amendment No. 183, in page 81, line 20 at the end to insert:

Valuation of Assets

Paragraph 25(3) of Schedule 6 to the Finance Act 1965 shall cease to have effect and it is hereby declared that any election made in accordance with paragraph 25(1) of the said Schedule shall be revocable by the taxpayer at any time within two years of the disposal to which the election refers.

The form of the Amendment will be familiar to the Financial Secretary. After the Finance Act, 1965 came on to the Statute Book it became apparent that paragraph 25 of Schedule 6 had been worded as it had so that the taxpayer might be compelled to make an irrevocable election before he could become

aware of the factors on which his decision would have to be based.

Paragraphs 24 and 25 of the Schedule offer the taxpayer two alternative methods of calculating the capital gain made on the realisation of an asset acquired before 6th April, 1965. The nature of the calculations which must be made in these cases is such that it is very difficult for him to decide, before figures have been finally agreed with the Inland Revenue, which of the alternatives it is in his interests to elect. This becomes an irrevocable election, and it must be made before the taxpayer knows which is the best way of doing it.

It can well be that the decision he makes without the full knowledge of the facts can be against his interests. The


new sub-paragraph which we propose would give the taxpayer the genuine freedom of choice based on known facts to which he is properly entitled whenever the law gives a right of election. The right should not be clouded over to facilitate the administration of what is admittedly very complicated legislation.

I do not think that the Financial Secretary could, in justice, refuse an Amendment of this kind. We are not wedded to the wording, and if he states that he accepts the principle we would be prepared to withdraw the Amendment and accept any suitable alternative. I think that the principle is clear, namely, that as the law stands the taxpayer is put at a disadvantage in having to make an election in the way he now must before the figures have been finally agreed with the Inland Revenue.

Mr. MacDermot: The Amendment overlooks the purpose for which the time apportionment method of valuation was included in the 1965 Finance Act. What we were concerned with was the problem of valuation of assets which were held at Budget day, assets which had been acquired before Budget day. We saw that both for the Inland Revenue and for the taxpayers and their advisers it would have involved an appalling volume of valuation work if every one of those assets had to be the subject of a specific valuation at Budget day in order to get its Budget day value and thereby be able to calculate the gains since Budget day.
What we did was to provide in paragraph 24 of Schedule 6 for the time apportionment formula, so that one compared the time which had elapsed since the asset was acquired, or since 6th April, 1945, if it had been acquired before then, and assumed that the increase in the value had taken place steadily over that period. In the vast majority of cases this would work to the benefit of the taxpayer, but so that no taxpayer should feel a sense of injustice we gave taxpayers two years—from the date of disposal, not from Budget day—to elect if they wished instead to have a valuation as at Budget day, 1965. We did not take any similar right to the Revenue. In cases where this time apportionment formula would operate heavily against the Revenue there was no right for the Revenue to elect; it was bound by the time apportionment formula. We gave

the right to taxpayers in order to correct any sense of injustice on their part.
The Amendment suggests that the election should not be made irrevocable and that if the taxpayer, having made his election, were to find that after all the time apportionment formula would operate more to his benefit, he should be allowed to re-elect in favour of it. If we did that we should defeat the object of the time apportionment formula because the result would be that people would make an actual valuation to find out precisely which would be more to their favour, and the time of the Revenue would be taken up because it also would have to make a valuation and it would have to do all the negotiations.
There is, of course, a point of principle involved. If all that work is done and an actual valuation is made and agreed as at Budget day, then we have the actual correct figure from which to calculate properly and truly what has been the gain since Budget day. There would be no reason then to go back on that and say in a somewhat sporting spirit that because the taxpayer elected to have the true valuation made instead of taking what had turned out to be more to his advantage by way of the time apportionment formula, we should be jolly decent chaps and not levy the correct duty but instead levy an incorrect duty more in favour of the taxpayer.
For both reasons—that the Amendment will undermine the purpose, which is to save administrative work, and because, the true value having been found, there is no reason then to substitute for it an artificial one—I must advise the Committee to reject the Amendment.

Mr. John Hall: I do not understand why the Financial Secretary thinks that the Revenue authorities should not be jolly decent chaps. If alternatives are open to a taxpayer, and he is free to take one or the other, I should have thought that the Revenue, if not trying to get more money out of the taxpayer than it was entitled to, would be prepared to assist him.
In every other aspect of our taxation legislation, if one is in difficulty one discusses the matter with one's tax inspector and he gives one all the help that he can. Indeed, during our debates last year I pointed to the problems that


affect the average taxpayer in calculating his Capital Gains Tax and spoke of the number of people who were throwing their hands up in despair over the problems that they face. I was told by one of the Treasury Ministers that the individual's proper course was to go to his tax inspector and have a full discussion with him, when the inspector would do all he could to help and make sure that he did not pay any more tax than was justly required by the Inland Revenue.
The Amendment gives the taxpayer an option and it enables the Revenue to discuss the matter with the taxpayer and gives him information on which he can make a sound judgment and do it on the basis of giving himself a smaller liability to tax. Surely nobody could quarrel with that. I cannot see why the Financial Secretary should in this case wish to keep to the Inland Revenue a sort of hidden weapon. In some cases the taxpayer has almost to toss a coin to decide which alternative he should adopt.
I am very disappointed with the Financial Secretary's reply. This is almost a technical Amendment, and I should have thought that he would have been more forthcoming. No doubt the feeling of conciliation that he might have had earlier is beginning to wear off and now he is sticking strictly to his Treasury briefs. I am very sorry about that. I do not propose to advise the Committee to divide on the Amendment, but I hope that we shall be able to return to the subject on Report.

Amendment negatived.

8.15 p.m.

Mr. John Hall: I beg to move Amendment 40, in page 81, line 31, at the end to add:
12.—(1) In section 20(4) of the Finance Act, 1965, after the words 'total amount of chargeable gains' there shall be inserted the words 'in excess of £500'.
(2) This paragraph shall have effect for the years 1967–68 and later years of assessment.
There is a certain similarity between the Amendments that we are moving to Schedule 13 and the Amendments that were moved last year. This Amendment is similar in form to one moved last year by my hon. Friend the Member for Harrow, Central (Mr. Grant). During

that debate he deployed three main arguments—the administrative burden, the effect of the tax on the share market and the fact that the tax was a disincentive to small savers, pointing out that the exemption of small gains was of particular value to that class of investor.
I do not wish to cover that ground again—this afternoon I have been careful to avoid going over arguments deployed on previous occasions—but I remember that on that occasion the points so cogently argued by my hon. Friends were supported, with his usual eloquence, by the Joint Under-Secretary of State for Economic Affairs. I only wish the hon. Gentleman were here now; I have a feeling that I should get a more sympathetic reception from him than I shall from the Chief Secretary. The points are as valid now as they were then.
I shall confine my remarks to the problem of the administrative burden. I do not think that there is any doubt, whatever the Treasury Bench may say, that the Inland Revenue staff are feeling the strain. There was a revolt last year, although the Financial Secretary earlier on said that it could not be described as a revolt but was just a matter of a few hotheads, who almost jeopardised the negotiations for increased salaries, which in themselves had been brought about because of the burden of work involved in the Government's fiscal legislation. We had a number of bitter complaints from the Inland Revenue staff at their conference this year. I think it is true to say that the Chancellor of the Exchequer will find it impossible to introduce any more tax reforms for some time to come unless, as in the case of S.E.T. he turns other Ministries into collecting and administrative organisations.
I suppose that the fact that we are not likely to see any more tax reforms for some little time is something not to be deplored, and one can say that perhaps in this case "out of evil cometh good". Nevertheless, it means that the Inland Revenue is under such pressure that it could not accept any further burden. Various professional bodies of which the Chief Secretary is well aware have for some time been expressing increasing anxiety about the work imposed upon them by the complicated legislation of the Capital Gains Tax.
I have a letter from a chartered accountant in my constituency, who writes:
So-called simplification of the tax code has created an almost intolerable burden for my profession and certainly for me personally. The extra work involved requires more staff, who are very difficult to get. I am just recovering from a coronary induced, my doctor says, by overwork coupled with anxiety resulting from the difficulty of advising my clients about the effect of the incredibly complicated legislation with which we now have to cope. For heaven's sake do something to convince the Government of the crying need for a reform which will reduce the present load and save the many thousands of wasted man-hours spent not only in my profession, but in industry and the legal profession.
That was a cry from the heart. I know the man slightly, and I know that he is very conscientious and has, as he says, been ill. This kind of experience has been shared by many thousands of professional men throughout the country. One of the purposes of our Amendment is to reduce the load on the Inland Revenue, on the professions, and on the individual taxpayers.
Professor Wheatcroft suggested another reason why there should be a small annual exemption, namely, that the high cost to the taxpayers who make the small gains is an extremely unfair element in a tax designed for social justice. He makes the suggestion, which I commend for consideration, first, that there should be an annual exemption for gains, and that is what we are suggesting here; and secondly, as an alternative, annual exemption for disposal of a value which would be of some much larger amount.
I am not, and I am sure my hon. Friends are not, wedded to the wording of the Amendment. If the Chief Secretary can suggest ways and means by which small gains may be exempted iii some way or another, which would reduce the administrative burden on the Inland Revenue, and on the professions which have to do much of the work, and on the taxpayers, I am sure that we would be prepared to accept the suggestion on the understanding that it would be brought forward on Report.
I hope that the right hon. Gentleman will not just repeat the sort of arguments we have had on previous occasions. He has had now enough experience of the working of the tax to realise that what I say now, and what I forecast two years

ago, is, in fact, happening, that it is tying up a vast number of man-hours in the consideration of individual taxpayers' business, which involves many calculations being made and a great deal of time spent on them.
When it turns out to show that there is no gain, possibly, at all, or only a very little, surely it must be to the interests of the Inland Revenue and of the Government as a whole to reduce the burden, to simplify the administration, even if only to reduce the general cost of collecting this tax. From the point of view of saving wear and tear on the minds and tempers, and, indeed, the bodies, of many thousands of people, I hope that the Chief Secretary will find it in his heart to accept this Amendment or something like it.

Mr. Frederic Harris: I shall detain the Committee for only a few moments. I have listened to the whole of the debate this afternoon and this evening about the Capital Gains Tax without having made a speech at all. I strongly support the view which my hon. Friend the Member for Wycombe (Mr. John Hall) has been expressing. I start with the contention that the tax is a bad tax in itself in any case. It militates against investment; it costs endless difficulties and any amount of work. As my hon. Friend has said, the administrative effort is very considerable. The officials are very much overworked; one has only to see them in one's own local district to know that.
Complaints come in all the time about this kind of difficulty in the administration, which just cannot stand up to the pressure. That is why there is little doubt that we shall not see much in the way of additional taxation in the very near future—and that, to my mind is a good thing in any case.
My thinking on this matter is now what it has always been, in favour of simplification, to make the business much easier wherever we possibly can. I have put forward various suggestions on these lines from time to time. Here we have a simple proposal to eliminate anything up to £500. This is a very sound proposition. I cannot imagine that it means much in the way of loss of taxation which the Government presently obtain from capital gains, but the ease to the administration generally by such a move, and the saving of annoyance to the people


making small gains and worrying about the returns, would be considerable.
I therefore very strongly support the view which my hon. Friend has put forward, and I hope that the Chief Secretary will see his way clear to accept the Amendment.

The Chief Secretary to the Treasury (Mr. John Diamond): As the hon. Gentleman the Member for Wycombe (Mr. John Hall) said, this proposal and similar proposals are not being discussed for the first time, and the arguments, as he said, are as valid as they ever were. That is to say, this proposal would in the first place save practically no time; in the second place would mean loss of revenue; and in the third place would help the richest and give no help to the less wealthy section. It is for this reason that this proposal has been top-hatted by the Conservative Front Bench.
The hon. Gentleman spent most of his time dealing with the element of saving time, so perhaps I could deal with that first, by pointing out that this would save time only in those cases where there was a disposal of the whole of the asset and not a part of it. This is not at all the normal situation because where one disposes of part of the asset one has to keep records just the same in order to see what value shall be attached to the remaining part. It would save time only in those cases where it would be abundantly clear that the amount involved could not possibly reach £500, because if there were any possibility of reaching that figure the calculation would have to be made just the same.
Let me say straight away that we are just as anxious as is the hon. Gentleman that this tax be collected with the minimum trouble and the minimum of time for all concerned, including the professions, as well as the Revenue, and that it should be collected with the minimum of irritation. Therefore, we have not only before these matters were discussed last year and the year before and also since then, reviewed the whole of the circumstances, to see if it was possible to produce any means whereby, without great cost to the Revenue and without unfairness to the taxpayer, one could reduce the amount of work. The answer is, as

the hon. Gentleman has indicated, that it was not possible.
It is not the subject of this Amendment, but, subject to what you say, Sir Eric, I should like to deal very shortly indeed with the only alternative method which offers any possibility of a reduction. No time is saved by a limitation of the amount on disposal, to which the hon. Gentleman referred very shortly. If we have a limitation on a disposal this would be wholly arbitrary and unjust. I am quite sure that it would not meet with the support of the Chamber once the details were known. A disposal limitation of £500 might, in fact, hide a capital gain of £490; it might hide a capital gain of £1; it might involve a capital loss—and nothing is said about what is to happen about capital losses.
So I repeat that, although, in principle, I am with the hon. Gentleman in the sense of wanting to find, if possible, a time saving method, even if that were to have a slight effect on the collection of the tax, but would nevertheless be fair to all taxpayers, we have not been able to find one, and this proposal certainly does not help, other than very marginally; and it certainly cannot be justified as a reform on the grounds of the time it saves, and it has all the defects which we have referred to previously.
Perhaps I can go through these very shortly indeed once more. It helps the most prosperous because only the man who has £500 worth of capital gains which he could manipulate, and could so very easily manipulate, is to escape. He would get the full benefit. The man who has less capital gain on average net, who cannot take advantage and cannot assess an alternative basis of assessment is excluded from this proposal completely.
One has to bear in mind that the rate of tax on capital gains is substantially less than the rate of tax on income. One accepts this, but it still requires a lot of demonstrating that the tax on hard earned income should be heavier than the tax on gains which do not involve the element of hard work but are merely the result of passive gains on savings.
There is, furthermore, the fact that personal allowances are available to anybody who is being assessed under the alternative basis and that would mean that one could not possibly be in the


position of attempting to collect Capital Gains Tax from anyone whose personal allowances had not been allowed in full or who had a balance of personal allowances unrelieved. It is unjustifiable that one should attempt to adjust taxes in this way. But the main reason against the Amendment—a reason which the hon. Member himself put forward—is that it does not serve the purpose at all well or, at the most, only to a very minimal extent.
I shall not dwell on the aspect of loss, but if we accepted £500 in gains, the corollary would normally be £500 in losses. But, having regard to the fact that it is inequitable, that it would help the most prosperous and not help at all the less prosperous, and that it would fail to serve its essential purpose of saving a useful amount of time in administration, I cannot recommend the Amendment to the Committee.

8.30 p.m.

Mr. John Hall: We got the usual reply. As we have many things to do yet, I shall not take up the time of the Committee in dealing with what the right hon. Gentleman has said point by point. However, he referred to the difference between earnings and gains which have occurred without effort on the part of the individual. In many cases, Capital Gains Tax will be imposed not on any true gain in the value of the asset but arising entirely out of inflation.
Thus, if one wants to replace an asset and has to sell it to do so and pay Capital Gains Tax on what is a theoretical capital

gain on the original cost, one finds as a rule that one has to pay much more than one realises after the deduction of the tax—more than would otherwise have been the case.

I explained on the last Amendment that one of the worst things about the tax was its element of wealth tax. This applies in this case as in the other. The right hon. Gentleman did not touch on the point and I did not bring it up myself, but the Minority Report of the Royal Commission recommended that there should be an exemption up to £400. That recommendation had the full support of Dr. Kaldor at that time and it is a pity that it was one of the few recommendations of his that were not accepted.

The right hon. Gentleman made the point that this Amendment would only benefit the wealthy, but that would not be so. Many people make small gains. It is true that they have an alternative method of assessment but, even so, the exemption of this completely from Capital Gains Tax would help people not in the top Surtax bracket as well as those who are.

As the right hon. Gentleman is determined to do nothing to relieve the burden not only on the Inland Revenue, which apparently he is prepared to accept, but on many thousands outside who will still have to cope with this incredibly complicated legislation, I can only advise my hon. and right hon. Friends to divide.

Question put, That those words be there added:—

The Committee divided: Ayes 122; Noes 187.

Division No. 361.]
AYES
[8.35 p.m.


Allason, James (Hemel Hempstead)
Doughty, Charles
Heseltine, Michael


Bell, Ronald
Elliott, R.W.(N'c'tle-upon-Tyne, N.)
Higgins, Terence L.


Biffen, John
Emery, Peter
Hiley, Joseph


Biggs-Davison, John
Errington, Sir Eric
Hill, J. E. B.


Bossom, Sir Clive
Eyre, Reginald
Holland, Philip


Boyle, Rt. Hn. Sir Edward
Fisher, Nigel
Hooson, Emlyn


Braine, Bernard
Fletcher-Cooke, Charles
Hordern, Peter


Brinton, Sir Tatton
Fortescue, Tim
Howell, David (Guildford)


Bromley-Davenport,Lt.-Col.Sir Walter
Gilmour, Ian (Norfolk, C.)
Hunt, John


Brown, Sir Edward (Bath)
Glover, Sir Douglas
Iremonger, T. L.


Bruce-Gardyne, J.
Glyn, Sir Richard
Jenkin, Patrick (Woodlord)



Goodhart, Philip



Buck, Antony (Colchester)
Goodhew, Victor
Jopling, Michael


Carr, Rt. Hn. Robert
Gower, Raymond
Kaberry, Sir Donald


Chichester-Clark, R.
Grieve, Percy
King, Evelyn (Dorset, S.)


Cooke, Robert
Grimond, Rt. Hn. J.
Kitson, Timothy


Cooper-Key, Sir Neill
Gurden, Harold
Lancaster, Col. C. G.


Craddock, Sir Beresford (Spelthorne)
Hall, John (Wycombe)
Langford-Holt, Sir John


Cunningham, Sir Knox
Hall-Davis, A. G. F.
Loveys, W. H.


Currie, G. B. H.
Harris, Frederic (Croydon, N.W.)
Lubbock, Eric


Dance, James
Harris, Reader (Heston)
McAdden, Sir Stephen


Davidson,James(Aberdeenshire, W.)
Harrison, Col. Sir Harwood (Eye)
MacArthur, Ian


Dean, Paul (Somerset, N.)
Hastings, Stephen
Macleod, Rt. Hn. Iain


Deedes, Rt. Hn. W. F. (Ashford)
Heald, Rt. Hn. Sir Lionel
McMaster, Stanley




Marten, Nell
Pike, Miss Mervyn
Taylor, Frank (Moss Side)


Maude, Angus
Pink, R. Bonner
Temple John M.


Mawby, Ray
Price, David (Eastleigh)
Thatcher, Mrs. Margaret


Maxwell-Hyslop, R. J.
Pym, Francis
Turton, Rt. Hn. R. H.


Mills, Stratum (Belfast, N.)
Rawlinson, Rt. Hn. Sir Peter
van Straubenzee, W. R.


Miscampbell, Norman
Renton, Rt. Hn. Sir David
Walker, Peter (Worcester)


Mitchell, David (Basingstoke)
Ridley, Hn. Nicholas
Walker-Smith, Rt. Hn. Sir Derek


More, Jasper
Rippon, Rt. Hn. Geoffrey
Wall, Patrick


Murton, Oscar
Rodgers, Sir John (Sevenoaks)
Ward, Dame Irene


Nabarro, Sir Gerald
Russell, Sir Ronald
Wells, John (Maidstone)


Noble, Rt. Hn. Michael
Scott, Nicholas
Whitelaw, Rt. Hn. William


Nott, John
Sharpies, Richard
Wills, Sir Gerald (Bridgwater)


Onslow, Cranley
Shaw, Michael (Sc'b'gh &amp; Whitby)
Wilson, Geoffrey (Truro)


Osborne, Sir Cyril (Louth)
Sinclair, Sir George
Wolrige-Gordon, Patrick


Page, Graham (Crosby)
Smith, John



Page, John (Harrow, W.)
Steel, David (Roxburgh)
TELLERS FOR THE AYES:


Pardoe, John
Summers, Sir Spencer
Mr. Anthony Grant and


Pearson, Sir Frank (Clitheroe)
Taylor, Sir Charles (Eastbourne)
Mr. Bernard Weatherill.


Percival, Ian
Taylor, Edward M.(G'gow, Cathcart)





NOES


Albu, Austen
Gordon Walker, Rt. Hn. P. C.
Morris, John (Aberavon)


Allaun, Frank (Salford, E.)
Gourlay, Harry
Moyle, Roland


Alldritt, Walter
Gregory, Arnold
Mulley, Rt. Hn. Frederick


Allen, Scholefield
Grey, Charles (Durham)
Newens, Stan


Armstrong, Ernest
Griffiths, David (Rother Valley)
Noel-Baker,Rt.Hn.Philip(Derby, S.)


Atkins, Ronald (Preston, N.)
Griffiths, Rt. Hn. James (Llanelly)
Oakes, Gordon


Atkinson, Norman (Tottenham)
Hale, Leslie (Oldham, W.)
Ogden, Eric


Bagier, Gordon A. T.
Hamilton, James (Bothwell)
O'Malley, Brian


Barnett, Joel
Hamling, William
Oram, Albert E.


Beaney, Alan
Hannan, William
Orbach, Maurice


Bence, Cyril
Hart, Mrs. Judith
Orme, Stanley


Bldwell, Sydney
Haseldine, Norman
Oswald, Thomas


Bishop, E. S.
Hazell, Bert
Owen, Dr. David (Plymouth, S'tn)


Blackburn, F.
Henig, Stanley
Page, Derek (King's Lynn)


Booth, Albert
Herbison, Rt. Hn. Margaret
Pannell, Rt. Hn. Charles


Boyden, James
Hooley, Frank
Parker, John (Dagenham)


Braddock, Mrs. E. M.
Houghton, Rt. Hn. Douglas
Pavitt, Laurence


Bray, Dr. Jeremy
Howarth, Harry (Wellingborough)
Pearson, Arthur (Pontypridd)


Brown, Bob (N'c'tle-upon-Tyne,W.)
Howarth, Robert (Bolton, E.)
Pentland, Norman


Buchanan, Richard (G'gow, Sp'burn)
Hoy, James
Perry, George H. (Nottingham, S.)



Huckfield, L.
Prentice, Rt. Hn. R. E.


Callaghan, Rt. Hn. James
Hughes, Rt. Hn. Cledwyn (Anglesey)
Price, Christopher (Perry Barr)


Carmichael, Neil
Hughes, Hector (Aberdeen, N.)
Price, Thomas (Westhoughton)


Carter-Jones, Lewis
Hynd, John
Pursey, Cmdr. Harry


Castle, Rt. Hn. Barbara
Irvine, A. J. (Edge Hill)
Randall, Harry


Coe, Denis
Jackson, Peter M. (High Peak)
Roberts, Albert (Normanton)


Coleman, Donald
Johnson, James (K'ston-on-Hull, W.)
Robinson, W. O. J. (Walth'stow, E.)


Concannon, J. D.
Jones, Dan (Burnley)
Roebuck, Roy


Conlan, Bernard
Judd, Frank
Rogers, George (Kensington, N.)


Craddock, George (Bradford, S.)
Kelley, Richard
Ross, Rt. Hn. William


Crawshaw, Richard
Kerr, Russell (Feltham)
Rowlands, E. (Cardiff, N.)


Cronin, John
Lee, John (Reading)
Shaw, Arnold (Ilford, S.)


Crossman, Rt. Hn. Richard
Lewis, Ron (Carlisle)
Sheldon, Robert


Dalyell, Tam
Lomas, Kenneth
Shore, Peter (Stepney)


Davidson, Arthur (Accrington)
Luard, Evan
Silkin, Rt. Hn. John (Deptford)


Davies, Dr. Ernest (Stretford)

Silverman, Julius (Aston)


Davies, Harold (Leek)
Lyon, Alexander W. (York)
Silverman, Sydney (Nelson)


Delargy, Hugh
McBride, Neil
Slater, Joseph


Dempsey, James
McCann, John
Small, William


Dewar, Donald
MacColl, James
Spriggs, Leslie


Diamond, Rt. Hn. John
MacDermot, Niall
Stewart, Rt. Hn. Michael


Dickens, James
Macdonald, A. H.
Swain, Thomas


Dobson, Ray
Mackenzie, Gregor (Rutherglen)
Swingler, Stephen


Doig, Peter
Mackie, John
Symonds, J. B.


Dunn, James A.
Maclennan, Robert
Taverne, Dick


Dunwoody, Mrs. Gwyneth (Exeter)
McMillan, Tom (Glasgow, C.)
Thomson, Rt. Hn. George


Dunwoody, Dr. John (F'th &amp; C'b'e)
MacPherson, Malcolm
Thornton, Ernest


Ellis, John
Mahon, Peter (Preston, S.)
Tinn, James


English, Michael
Mallalieu, E. L. (Brigg)
Tomney, Frank


Ennals, David
Mallalieu,J.P.W.(Huddersfield, E.)
Tuck, Raphael


Ensor, David
Manuel, Archie
Urwin, T. W.


Evans, Albert (Islington, S.W.)
Mapp, Charles
Wainwright, Edwin (Dearne Valley)


Evans, Ioan L. (Birm'h'm, Yardley)
Marquand, David
Walker, Harold (Doncaster)


Faulds, Andrew
Maxwell, Robert
Wallace, George


Finch, Harold
Millan, Bruce
Watkins, David (Consett)


Fletcher, Raymond (Ilkeston)
Miller, Dr. M. S.
Watkins, Tudor (Brecon &amp; Radnor)


Fletcher, Ted (Darlington)
Mitchell, R. c. (S'th'pton, Test)
Wellbeloved, James


Foot, Sir Dingle (Ipswich)
Moonman, Eric
Willey, Rt. Hn. Frederick


Ford, Ben
Morgan, Elystan (Cardiganshire)
Williams, Alan (Swansea, W.)


Freeson, Reginald
Morris, Alfred (Wythenshawe)
Williams, Alan Lee (Hornchurch)


Galpern, Sir Myer
Morris, Charles R. (Openshaw)
Williams, Mrs. Shirley (Hitchin)







Williams, W. T. (Warrington)
Winterbottom, R. E.
TELLERS FOR THE NOES:


Wilson, William (Coventry, S.)
Woof, Robert
Mr. Joseph Harper and


Winnick, David
Yates, Victor
Mr. Walter Harrison.

Question proposed, That the Schedule, as amended, be the Thirteenth Schedule to the Bill.

Mr. MacDermot: There is one point which I should like to make about paragraph 5. Under paragraph 18 of Schedule 7 to the 1965 Act, if a close company transfers an asset to a person at a price less than the full market value, the difference between the price and the market value is apportioned among the company's shareholders and regarded as replacing the acquisition of cost for Capital Gains Tax purposes. Where the disposition at less than market value is between two close companies which are members of a group it is obvious that there is no diminution in the shareholders' equity, looking at the group as a whole, and it follows that to apply paragraph 18 in these circumstances could produce inequitable results.
An Amendment to deal with this was tabled by the Opposition last year, but it was not called. At that time, the Government thought that it was unnecessary, or we would have proposed a similar Amendment ourselves. But it now appears that our view was misconceived and that paragraph 18 as the law stands is not overridden by Schedule 13, and so this paragraph is designed to amend the law in order to give the effect which we thought there would be.
The aim of the Amendment is to avoid penalising bona fide business arrangements, but we already hear of schemes being devised which, if put into effect, would take advantage of this relieving provision, or other provisions enacted for the convenience of groups of companies, in order to create artificial losses.
I wanted to make it clear that this would be blatant avoidance, and I take the opportunity to give a warning that if these provisions are abused, my right hon. Friend the Chancellor will not hesitate to introduce appropriate legislation, if need be with retrospective effect, to deal with it. We have not thought it right, in respect of these arrangements to alter our intention to proceed with this paragraph as it stands in the Schedule. We do so coupled with that warning.

8.45 p.m.

Mr. John Hall: We heard with interest the warning given by the Financial Secretary to would-be tax avoiders. It is also of interest for him to recall that this paragraph 5 follows an Amendment which we tried to move last year. Paragraph I also follows an Amendment which we moved last year. We are delighted that the Government have at last seen the error of their ways in these respects.

Question put and agreed to.

Schedule, as amended, agreed to.

Orders of the Day — Clause 31.—(CHARGEABLE GAINS: EXCLUSION OF DEVELOPMENT VALUE OF LAND IN GREAT BRITAIN.)

Mr. Graham Page: I beg to move Amendment No. 206, in page 36, line 29, after '(2)', to insert:
'for the purposes of this section "current use value" shall have the same meaning as in the Land Commission Act 1967 and in statutory instruments made under the authority of that Act and'.

The Chairman: With this Amendment we may also take Amendment No. 209, in page 36, line 31, at end insert:
'but in no event shall the amount equal to current use value, ascertained by virtue of this section and the said Schedule, exceed the amount of current use value ascertained in accordance with the provisions of the Land Commission Act 1967 and the statutory instruments made thereunder'.;
Amendment 207, in Schedule 14, page 81, line 34, leave out from beginning to end of line 47 on page 82; and Amendment 208, in page 83, line 32, leave out from beginning to end of line 50 on page 86.

Mr. Graham Page: As this is the first Amendment to the Clauses and Schedules dealing with the effect of betterment levy on taxation, and, in particular, with Corporation Tax and Capital Gains Tax, perhaps I might preface a detailed explanation of the Amendment with a general statement of what I believe to be the purpose of the Clause, so that I may fit the Amendment into that general purpose.
Throughout the debates on the Land Commission Bill, now the Land Commission Act, 1967, the Opposition protested against a tax upon development


value of land being imposed not as a tax, but as a levy. We would have wished it to be imposed as part of the normal system of taxation, but the Government insisted upon a levy, with all the administrative problems inherent in this. In particular, there is the calculation involved, which has resulted in the utmost complexity.
One of the major complexities is that to prevent double taxation, that is to relieve the taxpayer from paying both Capital Gains Tax or Corporation Tax, as well as betterment levy upon the same sum of money. In Clause 31, we have the formula preventing that happening for the non-trader in land, by dividing up the gain made by the disposal of land into a part attributable to net development value. The Land Commission Act made it clear—as clear as anything could be in that Act—that betterment levy is to be charged on net development value, and net development value is a figure calculated by deducting current use value of property from its market value. In most cases one is able to take the purchase price as the current use value and the sale price as the market value. But current use value plus one-tenth is the base from which we start to calculate the net development value on which betterment levy is paid.
Therefore, very roughly, the effect of the Land Commission Act and Clause 1 of the Bill will be that a gain on a sale is divided into, first, the increase in current use value—the value of the property for the purpose for which it being used when purchased or sold—and, secondly, the remainder of the gain less a figure equal to one-tenth of the current use value.
The Land Commission Act went to some trouble to define "current use value". In Schedule 4, it defines it for the purpose of the several cases of chargeable acts or events on which betterment levy arises. Scattered thoughout the 100 or so pages of closely-typed print of that Act are definitions or modifications of definitions of current use value. One might have thought that, having so exhaustively described current use value when it is to be used as the base from which net development value is to be calculated, that description could have

remained the same for the purpose of the Finance Bill when we use it as the top and bottom limit for Capital Gains Tax upon another part of the same gain. But in this Bill we have yet another Schedule, Schedule 14, and another eight or more closely printed pages giving yet another definition of "current use value".
I do not know whether the result is a gap between the increase in current use value and the net development value, or whether there is an overlap. I defy anyone to know from reading the two Schedules. All that I can do is to give an example of what I think might occur by taking the several Schedules of the Land Commission Act with Schedule 14 of the Bill.
Suppose that I buy some fields for £2,000. Let us say that, as fields, they are worth £1,000,but I hope to build on them, so I pay £2,000 for them. I get planning permission and then sell them for £3,000. I therefore make a gain of £1,000. Let us assume that by that time the current use value of the fields has risen, the farmland around them has become more expensive, and that, instead of £1,000 current use value, by the time that I sell them the current use value is £1,500. Therefore, there has been an increase in current use value of £500. I would pay Capital Gains Tax on £500. I pay betterment levy on the difference between the sale price and the purchase price—£1,000. I could perhaps choose to pay it on the difference between the current use value at the time that I sell and the sale price. It would be the current use value plus one-tenth, which would work out at £1,650. I should find myself paying a betterment levy on £1,350. That would not be worth it, so I choose to pay the betterment levy on £1,000—the difference between the sale price and the purchase price.
I said that I had got planning permission for the fields. I had assumed that I had done nothing about them. Suppose, however, that I had started work under that planning permission. I should then have to turn up the Schedule to the Bill and find what happens when I have planning permission on which I have started work. I find in the second part of paragraph 1(3) that if I have started work under that planning permission, the planning permission is taken into account in


assessing the current use value. Therefore, for the purpose of this example, I might be paying Capital Gains Tax on the full increase in current use valu.- from the £1,000 that the fields were worth when I bought them to the whole £3,000 at which I sold them, paying capital Gains Tax on £2,000.
Then, however, I turn to the Land Commission Act to find the base from which I start to calculate net development value, and I find that the definition of "current use value" concerning planning permission and work is different. It has certain qualifications. The planning permission on which work has started is to be excluded only in certain circumstances.
I refer to Schedule 6, paragraph 7(2), of the Land Commission Act, 1967, in which the planning permission on which work has started is to be excluded from the current use value of the land only if it was begun on or after the first appointed day and notice has been given under certain Sections of the Act or the carrying out of the project was done before the first appointed day. There is, therefore, a totally different definition.
I might find, therefore, that I was paying betterment levy on the difference between the current use value at the time of the sale, disregarding the planning permission, and the selling price, which in the example I have given would be £1.350. Therefore, I would be taxed, either by betterment levy or by Capital Gains Tax, on £2,350 when I had made a gain from the transaction of only £1,000.
There may be other anomalies when one takes the two Schedules together. I have picked only on one. While there are such anomalies, however, I see no reason for producing a Schedule to the Bill to deal with current use value. Surely, if we have a definition in the Land Commission Act, we should stick to that definition and not risk the chance of there being either a gap or an overlap in the assessment of tax. In the example which I have given, there was an overlap. Accordingly, there seems to me to be a substantial possibility of double taxation.
For these reasons, in our Amendment we merely say that "current use value" under the Bill should have the same definition as "current use value" in the Land Commission Act. That would be a simple

way of solving these problems, and, indeed, simple for the ordinary taxpayer to understand. The Land Commission Act was complicated enough, but to add to it a complicated Schedule such as Schedule 14 to the Bill is straining the efforts of the taxpayer too far.

9.0 p.m.

Mr. MacDermot: We are now embarked upon the provisions relating to betterment levy, and I suspect that we are in grave danger of this developing into a private argument between the Front Bench experts, as it becomes extremely technical.
At the outside of his speech, the hon. Member for Crosby (Mr. Graham Page) made an implied criticism that these provisions are lengthy and technical. However, that is inevitable. When we have to try to marry together one highly complex and technical affair like the Capital Gains Tax with another like betterment levy, it is inevitable that, if we are to get them right, the provisions themselves will be complicated and technical.
In moving his Amendment, the hon. Gentleman urged two matters—simplification and consistency. He said that if we were just to say that our basis of current use value for purposes of Capital Gains Tax is to be the same as that in the Land Commission Bill for purposes of betterment levy, that would be much simpler.
I am assured that if we had tried to legislate by reference in that way, it would have been extremely complicated, apart from the fact that there is a general dislike these days of legislation by reference. As it is desirable to get one code as coherent as one can in one place, because of certain exceptions to which I shall allude in a moment, from a drafting point of view it would have been difficult to legislate this matter by reference.
The other point which the hon. Gentleman urged was consistency. We accept his argument that, generally speaking, the basis for assessing the current use value should be the same for the two purposes, because the general object is to charge Capital Gains Tax on increases in current use value, and to charge betterment levy on increases in development value.
The result is that in framing Clause 31 and Schedule 14 we have reproduced


largely the provisions of the Land Commission Act. In particular, the first three sub-paragraphs of paragraph 1 of the Schedule reproduce almost word for word the provisions of the Land Commission Act and are entirely based on it. In addition, sub-paragraph (4) imports Land Commission Act definitions necessary for defining current use value in particular cases.
There are two exceptions, and I should explain what they are and the reasons for them. The first exception is very near to the case which the hon. Gentleman put to me, though not precisely. It arises in this way. It is an extremely technical matter, and I apologise to the Committee in advance.
Paragraph 7 of Schedule 6 to the Land Commission Act sets out the assumptions which are to be made about planning permission in computing current use value to determine base value for betterment levy. Almost all of that paragraph, directly or indirectly, has been brought into the rules for determining current use value for Capital Gains Tax. Thus, sub-paragraphs (3), (4) and (5) of paragraph 7 have been applied by paragraph 1(4,b) of the Fourteenth Schedule to the Bill, and the substance of sub-paragraphs (1) and (2) have been reproduced in paragraph 1(3) of the Schedule.
However, this is without the condition contained in paragraph 7(2,b) that account is to be taken of planning permission in pursuance of which material development has been begun after the first appointed day but not completed only if it was notified to the Land Commission. This means that where land on which material development has begun is sold, and this condition as to notification has not been complied with, a low current use value based on the value of the land without planning permission will be adopted as the base value for betterment levy purposes, thus enabling the Land Commission to recover the levy which should have been charged when the development started.
This low current use value could not be adopted as the consideration for the disposal for Capital Gains Tax purposes because the vendor of land on which material development has begun is entitled, under paragraph 2 of the

Fourteenth Schedule, to a deduction in computing his Capital Gains Tax liability for the increase in the current use value as a result of the development. Thus his gain cannot be ascertained properly unless the consideration for the disposal is taken to be the higher current use value reflecting the development.
It is true that the correct result could equally be achieved, at any rate, in relation to the vendor's liability, if the lower current use value were taken as the consideration and a special rule providing that the deduction for the increase in current use value under paragraph 2 of the Fourteenth Schedule should not be given in cases of this kind were to be introduced—

Mr. Lubbock: rose—

Mr. MacDermot: I have nearly finished. I shall give way when I have —but this would give the wrong result for the purchases of land because the amount treated as the consideration received by the vendor would also be the cost of acquisition to the purchaser in computing any gain on a subsequent sale by him, and the adoption of the lower current use value as his acquisition cost would lead to the artificial inflation of his gain since he would be selling the land as developed.

Mr. Lubbock: I am sure the Financial Secretary would agree that the argument he is presenting is immensely complicated, and that even with the Land Commission Act before him it is almost impossible for an hon. Member to follow the Bill unless he has prior knowledge of the arguments being presented. I suggest, with respect, that in a case like this, where complicated technical matters are at stake, the Committee should be given an opportunity of studying the arguments in advance, and we should not have to try to listen to them and follow our way through complicated Schedules to find out what the argument means.

Mr. MacDermot: It is precisely because of that difficulty that I thought it right to explain the technical matter. I appreciate that hon. Members will not want to debate the matter now, but it is on the record and hon. Members can see the explanation. This will enable them to consider it, and, subject to the agreement of the Chair, to raise the matter at


a later stage. It is for this reason that I have dealt with the matter in this way, and if, on a technical matter of this kind, an hon. Member on studying the Bill considers that he ought to approach me to seek an explanation, I shall be only too happy to oblige.
The hon. Member for Crosby put to me an example which I think he will agree comes near to the point which I have been seeking to explain to the Committee, but I think that his point is misconceived, in that planning permission is taken into account in current use value only if the work is started under these provisions in the way in which I have been describing. If the work is started, an allowance in the current use value cost is given under paragraph 2 of the Fourteenth Schedule, but, as I say, this is a case in which the basis of the assessment of the current use value is not identical with that under the Land Commission Act, for the reason which I have explained.
The other case is rather simpler, and is dealt with under paragraph 1(5) of the Fourteenth Schedule. If any hon. Member wants a further explanation of that, we can perhaps deal with it when we come to the Schedule. This is why we have taken this course of setting out the definition again in accordance with the definition in the Land Commission Act, but with those exceptions which I have mentioned.
I think that what I have said covers Amendments Nos. 209 and 206. We are also discussing Amendment No. 208, and the Amendment would not be acceptable at all in the light of what I have said because it would omit from the Schedule important paragraphs for extending the provisions for applying current use value rules in cases of part-disposal of land with development value, paragraphs dealing with disposals by way of grant on a lease, and provisions dealing with certain minor cases where current use value is to be substituted for market value, and cases where market value is to be taken into account notwithstanding the provisions of the principal Section.
The other Amendment is Amendment No. 207. I am not sure what its proposers had in mind, but without it, in cases where material development within Case C of the Land Commission Act

takes place, and the land is subsequently disposed of, the result will be a charge to Capital Gains Tax on the development value which had already been charged on the betterment levy. For these reasons, I must advise the Committee to reject the Amendment.

Mr. Graham Page: The Committee is grateful to the Financial Secretary for his explanation of this rather technical point. I am grateful to him for so aptly summarising what I had sought to do in the Amendment, namely, to simplify and to be consistent. For the record, I point out that the hon. and learned Gentleman did not deal with sub-paragraph (2,a) of the Schedule. He dealt with sub-paragraph (2,b). There is a possibility of the same sort of thing arising under subparagraph (2,a), and in connection with Amendment No. 208, which sought to remove from the Schedule any new rules relating to current use value, there is some difficulty in applying rules concerning part disposals under the Finance Bill, which differ from those under the Land Commission Act.
This is a subject which one cannot take in by listening as well as by reading. The Financial Secretary has said that if there is any difficulty we may return to the question at a later stage. From what he told the Committee I am sure that he is not able to give a firm undertaking that no double taxation will arise out of the inter-relation of the Schedules of the Land Commission Act and this Schedule. I am sure that in the examples which he and I gave—which were very near each other—there will be double taxation. There will be Capital Gains Tax and betterment levy on the same sum or part of the same sum.
I shall study carefully what the hon. and learned Gentleman has said in order to see whether we can gain any assurance that double taxation will be avoided. At the moment I cannot think that it will be.

Mr. MacDermot: I will study what the hon. Member has said about sub-paragraph (2,a) and if there is anything further I should add I will let him know.
On his last point, I can give him an unequivocal assurance that in our view there will be no overlap or double taxation.

Mr. Graham Page: With those assurances, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Graham Page: I beg to move Amendment No. 186, in page 36, to leave out lines 38 to 41.

The Chairman: With this Amendment we can take Amendment No. 187, in page 36, line 39, leave out from 'given' to 'or' in line 40 and insert:
'before the end of the third fiscal year following that in which the disposal took place'.
and Government Amendments No. 151 and No. 152.

9.15 p.m.

Mr. Graham Page: I am much obliged, Sir Eric.
The Amendment seeks to remove words which set a time within which the taxpayer must elect whether he will take the formula under Clause 31(1) for the assessment of Capital Gains Tax or choose to have Capital Gains Tax assessed on the whole of his gain. Subsection (3), to which this is an Amendment, allows the taxpayer to choose. The principle of the Clause is to divide a gain on disposal of property between an increase in current use value and the net development value, and to charge Capital Gains Tax on the former and betterment levy on the latter.
However, if the taxpayer has losses to take into account against a capital gain, it may be worth his while to be assessed for Capital Gains Tax on the whole gain and also, perhaps, to pay betterment levy on such part of it as is attributable to net development value. The question is, how soon will he know what choice to make? How soon, for example, will the increase in the current use value be settled by the Inland Revenue? I understand that this is the first Department to which this transaction will go and which will issue some sort of certificate on that increase.
Then, how soon will he know the net development value on which he has to pay betterment levy? That is to be decided by the Land Commission. He ought not to be set a time limit for his election when those who have to settle these figures for him have no time limit under six years. The taxpayer is required to choose "blind", and the pur-

pose of Amendment No. 186 is to remove that time limit.
If there is to be a time limit, on the other hand, it should not date, as do those in the Bill, from the date of disposal of the property, which might be any date in the year of assessment or the fiscal year. It has no relationship to the end of a tax year and it is inconvenient for the taxpayer to remember the date on which disposal took place and the fact that he must choose within a certain time from that date.
The Government appear to have seen that it would be inconvenient, having regard to Amendments Nos. 151 and 152 in the name of the Chancellor, in which they provide that the election must be within the year of disposal. Surely that is either cynical and callous or a very good joke. How on earth can a man decide within a year of assessment in which a disposal took place whether he should make this choice or not? That sort of Amendment says, in effect, "You make your choice and we will then work out the figures so as to get the most out of you."
As opposed to that, our Amendment No. 187 gives the taxpayer three years to decide. It provides that he shall make his election within the third year from the year of the disposal. This is not unreasonable, considering that the Land Commission has six years to work out these figures and the Inland Revenue, on Capital Gains Tax, has, I believe, no limit at all.
Here is a simple example of what may happen. I purchase some vacant land for £10,000 because I hope to build 50 houses on it. As vacant land it is worth only £2,000. I obtain planning permission not for the 50 houses I want to build but for 25, so I sell the land at a loss, at £9,000 instead of the £10,000 which I paid for it. Between that purchase and sale, farm land round about has gone up in value, and the vacant land which I bought has increased in current use value from £2,000 to £3,000.
If I take the formula in Clause 31(1), taking the difference between current use values when I purchased and when I sold, that is, the difference between £2,000 and £3,000, I shall pay Capital Gains Tax on £1,000. But for the purpose of betterment levy the sale price was £9,000, the purchase price having been £10,000, so


I have made a loss on the transaction and I have no betterment levy to pay. That is what happens if I elect under Clause 31(1).
If I elect to disregard Clause 31(1) and I say that I want my Capital Gains Tax assessed on the whole transaction, not just on the difference between current use values, then, instead of paying Capital Gains Tax on £1,000, I have a loss, a capital loss of £500, perhaps, to take into account against another capital gain which I may have made.
That is all perfectly straightforward. [Laughter.] I have not complicated it. The only complication is the sale price. I sold for £9,000 at a loss, after paying £10,000 for the land, but that sale price may need to be calculated not just on the figure paid by me but by reference to several other matters in the Schedules to the Land Commission Act. It may have to be calculated by reference to expenditure on improvements during the time when I had the property.
It may have to be calculated by reference to the effect of other chargeable acts or events under other Cases in the Land Commission Act, the release of restrictive covenants, the purchase of an easement of access to the land, or something like that. It may have to be calculated by reference to part disposals of the land, part disposals either geographically or in title, a long lease having been granted, perhaps. It may have to be calculated by reference to death and Estate Duty.
All those matters have to be determined eventually by the Land Commission. I can state what I think ought to be the calculation of the sale price, but I have to notify the transaction to the Land Commission and the Land Commission has six years to decide whether I am right or wrong in saying that I can take account of these improvements, that easement, those restrictive covenants, and so on.
When there is all that to be done, it is ridiculous to ask the taxpayer to make his election within the year of disposal. He will never get a decision within that time from the Land Commission, and, in the circumstances, he should be given a longer time. Perhaps—I thought of this after putting the Amendment down —it might be right to say that he could

make his election within a certain period from the assessment by the Land Commission, or something of that sort. At least, he should be given longer, and the period of three years which we propose seems not unreasonable, having regard to the time which both the Inland Revenue and the Land Commission are allowed by statute to take in assessing these figures.

Mr. MacDermot: The hon. Member for Crosby (Mr. Graham Page) has correctly explained how the Amendments relate to the election in the Clause. That is the election that enables the Capital Gains Tax charged on disposal to be computed by reference to the full acquisition cost and the sale price of the land, and not by reference to current use value. The provision is designed to benefit the owner of land which has a declining development value. There may have been an increase in the current use value and it might be unfair to him to be made subject to Capital Gains Tax on that if there had been an overall loss owing to a decline in the development value.
A number of Amendments is before us. First, there is Amendment No. 186, which proposes that there should be no time limit for his exercising this election. We think that that would be quite impracticable; there must be some limit. We then have the revised limits proposed in the Government Amendments, Nos. 151 and 152. Thirdly, we have the further period suggested in Amendment No. 187.
Perhaps it would be simplest if I explained, first, the reason for the Government Amendments. I think that the hon. Gentleman has misunderstood their effect. It is not that the election will have to he made by the end of the year in which the disposal is made but, borrowing the terms of Amendment 187, it would be made before the end of the second fiscal year following the year in which the disposal takes place. That is because the assessment would be made on a preceding year basis.
After the Bill was published we received representations, from the C.B.I., in particular, that it would be convenient to accountants and other professional advisers if the time limit for the election were the end of the second fiscal year following that in which the disposal takes


place. That was for the various reasons which have been expounded very fully by the hon. Gentleman and I need not recapitulate. We put down the Amendments to achieve that effect.

Mr. Temple: I think that the C.B.I. made slightly different representations. As I am informed, it asked that this should be extended to six years, as in the Land Commission Act, Section 44(3).

Mr. MacDermot: That may be what it has suggested to the hon. Gentleman, but I am advised that in the discussions which took place with the Inland Revenue it asked for what I have outlined. Our Amendment was framed to meet that request. It may be that it, or in any event others and some hon. Members opposite, would prefer a longer period. I do not suggest that there is any magic about the period which we have chosen. What we want to do is to meet the general convenience of all concerned.
There are obviously advantages in concentrating people's minds, as it were, and urging them to get on with it and to make their election as early as is reasonable, but we do not want to make difficulties. The Board has power under the subsection to allow further time in particular cases. That is intended particularly to meet the kind of case to which the hon. Gentleman referred, namely, where the taxpayer is not in a position to decide whether or not to elect because the betterment levy consequences of the disposal have not yet been settled. In those cases the Board could and would grant an extension of time.
If the hon. Gentleman would not press his Amendment at this stage, and would allow the Government Amendment to be passed, we could both consider the matter further in the light of what he has said. Having considered that and now realising the true effect of the Government Amendment, and bearing in mind the power to extend the time given under the Clause, he might come to the conclusion that the period of time we have suggested in our Amendments is satisfactory. If, at the end, he is of a different opinion, perhaps we could return to the matter on Report.

9.30 p.m.

Mr. Graham Page: I return the compliment to the hon. and learned Gentle-

man and say that if he would accept my Amendment we could think about it again at a later stage. But he has been so courteous. I realise now, from his explanation, that the Government Amendment takes the taxpayer to the second year. We seem to be very near on this; I am pleading for the third year. There is no reason to harass the taxpayer over this. It is a very complicated matter, and he and his accountants will have a great deal of trouble in working this out. I should not have thought that the Inland Revenue would want to harass him.
On the assurance which the Financial Secretary has given us, that if we let him have his Amendment we can continue to think about it with a possibility of coming back to this at a later stage, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 151, in page 36, line 40, leave out 'time of the disposal' and insert:
'end of the year of assessment in which the disposal is made'.

No. 152, in line 41, at end insert:
'and "year of assessment" here means, for corporation tax as well as for capital gains tax, a year beginning on 6th April'.—[Mr. MacDermot.]

Mr. Graham Page: I beg to move Amendment No. 185, in page 37, line 1, after 'that' to insert:
'the amount upon which betterment levy is chargeable is a sum allowable as a deduction in the computation of the profits or gains arising or accruing to any person or company charged to income tax or corporation tax (as the case may be) as a developer of or trader or dealer in land but otherwise'.

The Chairman: Amendment No. 191, in page 37, line 2, after ' deduction ', insert:
'for the purposes of a charge to tax under Case I or Case VII of Schedule D but not otherwise'.
may be discussed at the same time.

Mr. Graham Page: I am obliged to you, Sir Eric, for saying that we may also discuss Amendment No. 191. This, I very much regret to say, omits a small Amendment which I thought I had tabled, but it was on a slip of paper and must have got lost.
Perhaps I might say, by way of a point of order, Sir Eric, that Amendment No. 191 would mean what it is intended to mean only if the word "not" in the second line in page 37 were also omitted. It is intended that the provision should then read:
It is hereby declared that a payment of betterment levy is a sum allowable as a deduction for the purposes of a charge to tax under Case I or Case VII of Schedule D but not otherwise.
Returning to Amendment No. 185, perhaps I might refer to the booklet entitled "A guide for builders and developers on betterment levy". The Minister of State, Housing and Local Government, knows that I have been rather rude about these little pamphlets from time to time, but in this case I compliment the authors upon summing up very well on the last page the relationship between betterment levy and other taxes.
The question on the last page of the pamphlet is:
What provision is being made to take account of levy paid in calculating in Corporation and Capital Gains Tax and vice versa?
The answer is:
It is intended that provision will be made in the 1967 Finance Bill that when the levy comes into operation Capital Gains Tax for the purpose of Corporation Tax and Capital Gains Tax on long-term gains will be limited to changes in the current use value of land, and any changes in development value will be left wholly to betterment levy. In the case of short-term gains of individuals which are taxable as income the amount of levy paid will be allowable as an expense.
Then comes this sentence:
The position will be the same in the case of property dealers when the profits on realisation of development value are taxable as income.
So the summary there is that there will not be double taxation on a non-trader dealing with land; there will be double taxation on a man who has to pay short-term capital gains; and there will be double taxation on the dealer in land; he will pay betterment levy and Income Tax, or, in the case of a company, Corporation Tax, on the gain which he makes.
One whose business it is to buy and sell land or to develop and dispose of land is treated for ordinary tax purposes as any other trader. The land or the bricks and mortar are his stock-in-trade in the same way as tins of food are a grocer's stock-

in-trade. Therefore, he is taxed on his dealings with them in buying and selling. He will be paying tax not only on any increase in the current use value of the land; he will be paying Income Tax on the whole of his gain, subject, of course, to deductions which he is allowed to make for the expenses of his business; he will pay that Income Tax on the whole of his gain.
That gain will include the sum of net development value, and on that sum of net development value he will be paying betterment levy as well as Income Tax. He will suffer Income Tax and betterment levy on the same sum of money, which is a form of double taxation, which will be a deterrent to developers.
I think that that is ironical. I am very glad we have on the Front Bench representatives of the Ministry of Housing and Local Government. A tax of this sort will be a deterrent on the developer of residential property, the very person, I would have thought, whom the Government would wish to encourage. He will be penalised, but the casual one-deal amateur gets away with it, without double taxation. Is this really Government policy? It seems to me quite ridiculous that the man who is running the business and developing land, putting houses on it, is to be charged something like 16s. 3d. in the £ in taxation—when we combine betterment levy with Income Tax which he has to pay.
Therefore, we have produced Amendment No. 185 which will remove from tax the whole of the money on which betterment levy is charged; that is to say, the whole of the net development value on the whole of the property. Because the trader would be paying ordinary tax on that, paying Income Tax on that sum, it is unfair that he should have to bring that sum into account again as subject to betterment levy.
That, I think, is the fair way, the only fair way, of dealing with the matter, but apparently the Government are not even prepared to allow the trader to set off what he pays in betterment levy—not, as we would wish in this first Amendment, the whole of the amount of betterment levy as assessed; they will not allow that; but they will not, as far as I can read the Bill and other Statutes, allow him even to deduct what he pays


in betterment levy from his profits in his business.
Betterment levy should surely not be payable at all upon the money which has been taxed. This principle is recognised in Clause 31 and in the Land Commission Act. Betterment levy is not assessed upon current use value. Capital Gains Tax is not assessed upon net development value. That applies to everyone except the trader.
Many times over the past years Government spokesmen have sought to justify the betterment levy and the Land Commission by quoting cases of huge profits from the purchase and then the sale of property. These cases have been quoted as tax-free gains. In fact, the most startling cases quoted have been those which wer not tax free at all—transactions by dealers in lands, by developers —and the gain has been fully taxed as profits. Thereby, the Exchequer and, through it, the community, have done well out of the taxation of these profits.
Perhaps to make that plain does not suit the Government politically so the betterment levy is held up as the great instrument of taking back for the community the value supposed to have been created by the community in the land. In fact, that value has been taken back over the past years by Capital Gains Tax, Corporation Tax and Income Tax on the trader in land. This has been the major factor in taking back the value created by the community. It is true that the Bill boosts, as it were, the betterment levy as being a great instrument for this. Capital Gains Tax is made to apply only to an increase in current use value. But that does not apply to the trading man.
The betterment levy is not to be reduced in any way by payment of ordinary Income Tax by the man who deals and trades in property. This is grossly unfair on just the man whom we want to encourage and not penalise in his business. It is not only unfair on him, but crass folly from the point of view of the policy of encouraging the development of resident property and the provision of homes for the people.

Mr. MacDermot: The hon. Member for Crosby (Mr. Graham Page) has made it clear that the purpose of the Amendment is that the betterment levy should

be treated in the same way for the purpose of taxing trading profits as is proposed for the purpose of the long-term Capital Gains Tax. The result would be that, in measuring the liability to Income Tax or Corporation Tax of a dealer in land or in the development of land, increases in development value would be excluded and left wholly to the betterment levy, so that only current use value would be taken into account in reckoning liability to tax on trading profits.
If we were to accept the Amendment, we would be ignoring the distinction, which exists in many other ways, between the taxing of a person who realises a capital gain and the taxing of the income of a person who deals in land and part of whose profits may be the result of a capital gain realised in the course of that dealing. When we originally decided to impose a betterment levy on development value we saw that the right relationship between the levy and the long-term Capital Gains Tax was to exclude development value from capital gains for the purpose of Capital Gains Tax. We said that from the outset.

9.45 p.m.

While betterment levy can fairly be treated as a substitute for tax on capital gains, it in no way corresponds to tax on income and could not be treated as such. Accordingly, we adopted the approach that the right relationship between betterment levy and taxes on income—that is to say, taxes on trading profits, taxes on short-term gains and income from land—would be secured by following the ordinary rules of computation on Case I, Case VII and Case VIII respectively, and allowing the taxpayer to treat any payment of betterment levy as a deductible expense. Since our proposals have been published, there have been protests at this decision, in particular from the building industry, but it does not follow that the solution which is right in the capital gains context is right in the context of tax on incomes.

The land of a builder or developer or dealer in land is in effect his stock in trade, and the realistic way of looking at betterment levy is as a factor in the cost of acquiring his stock in trade. As such, it is essentially akin to other national and local imposts, such as Purchase Tax, or local rates, which have always been an


allowable deduction in computing trade profits.

If hon. Members opposite do not like that example, I would give them one which is perhaps rather nearer and closer in a provision which they introduced when they were in power. That was the levy on advertising revenue of commercial television companies which was dealt with in the same way. That has now been replaced under Section 13 of the Television Act, 1964, by what is called the additional payment on top of their rental charge which is based on their advertising revenue. The yield of this additional payment comes, like betterment levy, into the Exchequer; but, for the purpose of calculating the taxable profits of the television operators, the method adopted in relation to these additional payments is the same as that which we now propose for betterment levy. In both cases, what the Revenue regards as the normal tax rules have been followed.

There is a further consideration. The developer in many cases acquires land which already has planning permission on which betterment levy will have been paid in full or in substantial measure. To the extent that the purchase price includes the levy element, the dealer is automatically allowed a deduction for it in computing his profits, so it would be consistent and logical to treat also as an expense of the trade any levy which the dealer himself has to bear if it falls to him to secure the planning permission after acquiring the land or if the existing permission has to be varied. That is how development charges incurred under the 1947 Act were treated for tax purposes.

The National Federation of Building Trades Employers says that some 13 per cent. of land held by builders and developers at any given time is without planing permission. In this settings, it would be highly anomalous if the builder who buys land without planning permission were virtually exempt from levy in that the Amendment would give full credit for it against his tax, whereas the builder who buys land on which planning permission has been given and levy paid suffers a levy as an element in cost.

So much for Amendment No. 185. The hon. Member for Crosby is proposing to hand in, if he has not already done

so, a manuscript Amendment relating to Amendment No. 191. I hope that I have grasped correctly the effect of the Amendment, subject to the addition which he is making to it. I understand that he wants to declare that the levy is an allowable deduction in taxing under Case I—that is, in the case of trades—and under Case VII—the short-term capital gains—while maintaining the position that it is not an allowable deduction for Capital Gains Tax purposes.

This is the law as accepted by the Revenue so far as it concerns Case VII —the short-term gains—and the computation of the Case I profits of dealers in land, but if the Amendment is intended, as I believe it is, to go further and to allow deduction for betterment levy paid by any trader, for example, a shopkeeper owing land who obtains permission to enlarge his shop on it, bearing in mind that such a person can obtain no tax allowance for the cost of the land if he had bought it, or for the cost of erecting a building on it, unless it is an industrial building, it is clearly inappropriate that he should obtain tax deduction for one item of cost relating to the erection of his building, namely, the betterment levy.

Mr. Graham Page: It was not my intention to go as far as that, although I should be very pleased if the Government did. Can the hon. and learned Gentleman spell out where the deduction is allowable, where my Amendment would be met under the existing law, which I understand to be his point?

Mr. MacDermot: As the hon. Gentleman will appreciate, I can only pass on the assurance from advisers that this is the Revenue's view of the effect. If he would like me to spell out the provisions, I undertake to write to him and do so. For the reasons which I have given, I must advise the Committee to reject the Amendment.

Mr. Graham Page: That is a most unsatisfactory answer. Whatever arguments the hon. and learned Gentleman puts forward, he cannot get round the fact that the same sum of money is being taxed twice in the hands of a man who is providing assets for the country and homes for the people. That is where this imposition of betterment levy and Income Tax on the trader in land,


the developer of houses, will be such a deterrent. No argument which the hon. and learned Gentleman has put forward has got over the difficulty of double taxation on the man who is carrying out the work, and in those circum-

stances I must advise my right hon. and hon. Friends to divide the Committee.

Question put, That those words be there inserted:—

The Committee divided: Ayes 127, Noes 186.

Division No. 362.]
AYES
[9.53 p.m.


Allason, James (Hemel Hempstead)
Harrison, Col, Sir Harwood (Eye)
Page, Graham (Crosby)


Bell, Ronald
Hastings, Stephen
Page, John (Harrow, W.)


Bitten, John
Heald, Rt. Hn. Sir Lionel
Pardoe, John


Biggs-Davison, John
Heseltine, Michel
Pearson, Sir Frank (Clitheroe)


Bossom, Sir Clive
Higgins, Terence L.
Percival, Ian


Braine, Bernard
Hiley, Joseph
Pike, Miss Mervyn


Brinton, Sir Tatton
Hill, J. E. B.
Pink, R. Bonner


Bromley-Davenport,Lt. -Col. Sir Walter
Hirst, Geoffrey
Price, David (Eastleigh)


Brown, Sir Edward (Bath)
Holland, Philip
Pym, Francis


Bruce-Gardyne, J.
Hooson, Emlyn
Rawlinson, Rt. Hn. Sir Peter


Buck, Antony (Colchester)
Hordern, Peter
Renton, Rt. Hn. Sir David


Carr, Rt. Hn. Robert
Hornby, Richard
Ridley, Hn. Nicholas


Chichester-Clark, R.
Howell, David (Guildford)
Rippon, Rt. Hn. Geoffrey


Cooke, Robert
Hunt, John
Rodgers, Sir John (Sevenoaks)


Cooper-Key, Sir Neill
Iremonger, T. L.
Russell, Sir Ronald


Craddock, Sir Beresford (Spelthorne)
Jenkin, Patrick (Woodford)
Scott, Nicholas


Crowder, F. P.
Jopling, Michael
Sharpies, Richard


Cunningham, Sir Knox
Kaberry, Sir Donald
Shaw, Michael (Sc'b'gh &amp; Whitby)


Currie, G. B. H.
King, Evelyn (Dorset, S.)
Sinclair, Sir George


Dance, James
Kitson, Timothy
Smith, John


Davidson,James(Aberdeenshire,W.)
Knight, Mrs. Jill
Steel, David (Roxburgh)


Dean, Paul (Somerset, N.)
Lancaster, Col. C. G.
Stoddart-Scott, Col. Sir M. (Ripton)


Deedes, Rt. Hn. W. F. (Ashford)
Langford-Holt, Sir John
Summers, Sir Spencer


Doughty, Charles
Loveys, W. H.
Taylor, Sir Charles (Eastbourne)


Elliott, R. W.(N'c'tle-upon-Tyne,N.)
Lubbock, Eric
Taylor,Edward M.(G'gow,Cathcart)


Emery, Peter
McAdden, Sir Stephen
Taylor, Frank (Moss Side)


Errington, Sir Eric
MacArthur, Ian
Temple, John M.


Farr, John
Macleod, Rt. Hn. Iain
Thatcher, Mrs. Margaret


Fisher, Nigel
McMaster, Stanley
Turton, Rt. Hn. R. H.


Fletcher-Cooke, Charles
Marten, Neil
van Straubenzee, W. R.


Fortescue, Tim
Maude, Angus
Vaughan-Morgan, Rt. Hn. Sir John


Glover, Sir Douglas
Mawby, Ray
Walker-Smith, Rt. Hn. Sir Derek


Glyn, Sir Richard
Maxwell-Hyslop, R. J.
Wall, Patrick


Goodhart, Philip
Maydon, Lt.-Cmdr, S. L. C.
Ward, Dame Irene


Goodhew, Victor
Mills, Stratton (Belfast, N.)
Wells, John (Maidstone)


Gower, Raymond
Miscampbell, Norman
Whitelaw, Rt. Hn. William


Grant, Anthony
Mitchell, David (Basingstoke)
Wills, Sir Gerald (Bridgwater)


Grieve, Percy
More, Jasper
Wilson, Geoffery (Truro)


Grimond, Rt. Hn. J.
Murton, Oscar
Wolrige-Gordon, Patrick


Gurden, Harold
Nabarro, Sir Gerald



Hall, John (Wycombe)
Noble, Rt. Hn. Michael



Hall-Davis, A. G. F.
Nott, John
TELLERS FOR THE AYES:


Harris, Frederic (Croydon, N.W.)
Onslow, Cranley
Mr. Reginald Eyre and


Harris, Reader (Heston)
Osborne, Sir Cyril (Louth)
Mr. Bernard Weatherill.




NOES


Albu, Austen
Carter-Jones, Lewis
English, Michael


Allaun, Frank (Salford, E.)
Castle, Rt. Hn. Barbara
Ennals, David


Alldritt, Walter
Coe, Denis
Ensor, David


Allen, Scholefield
Coleman, Donald
Evans, Albert (Islington, S.W.)


Armstrong, Ernest
Concannon, J. D.
Evans, Ioan L. (Birm'h'm, Yardley)


Atkins, Ronald (Preston, N.)
Conlan, Bernard
Faulds, Andrew


Atkinson, Norman (Tottenham)
Craddock, George (Bradford, S.)
Finch, Harold


Bagier, Gordon A. T.
Crawshaw, Richard
Fletcher, Raymond (Ilkeston)


Barnett, Joel
Cronin, John
Fletcher, Ted (Darlington)


Beamy, Alan
Dalyell, Tam
Floud, Bernard


Bence, Cyril
Davidson, Arthur (Accrington)
Foot, Sir Dingle (Ipswich)


Bidwell, Sydney
Davies, Dr. Ernest (Stretford)
Ford, Ben


Bishop, E. S.
Davies, Harold (Leek)
Freeson, Reginald


Blackburn, F.
Delargy, Hugh
Galpern, Sir Myer


Booth, Albert
Dempsey, James
Gordon Walker, Rt. Hn. P. C.


Boyden, James
Dewar, Donald
Gourlay, Harry


Braddock, Mrs. E. M.
Diamond, Rt. Hn. John
Gregory, Arnold


Bray, Dr. Jeremy
Dobson, Ray
Grey, Charles (Durham)


Brown,Bob(N'c'tle-upon-Tyne,W.)
Doig, Peter
Griffiths, David (Rother Valley)


Buchan, Norman
Dunn, James A.
Griffiths, Rt. Hn. James (Llanelly)


Buchanan, Richard (G'gow, Sp'burn)
Dunwoody, Mrs. Gwyneth (Exeter)
Hale, Leslie (Oldham, W.)


Callaghan, Rt. Hn. James
Dunwoody, Dr. John (F'th &amp; C'b'e)
Hamilton, James (Bothwell)


Carmichael, Neil
Ellis, John
Hamling, William




Hannan, William
Mallalieu, J.P.W.(Huddersfield, E.)
Rowlands, E. (Cardiff, N.)


Harper, Joseph
Manuel, Archie
Shaw, Arnold (Ilford, S.)


Hart, Mr. Judith
Mapp, Charles
Sheldon, Robert


Haseldine, Norman
Marquand, David
Shore, Peter (Stepney)


Hazell, Bert
Millan, Bruce
Silverman, Julius (Aston)


Henig, Stanley
Miller, Dt. M. S.
Silverman, Sydney (Nelson)


Herbison, Rt. Hn. Margaret
Mitchell, R. C. (S'th'pton, Test)
Slater, Joseph


Hooley, Frank
Moonman, Eric
Small, William


Houghton, Rt. Hn. Douglas
Morgan, Elystan (Cardinganshire)
Spriggs, Leslie


Howarth, Harry (Wellingborough)
Morris, Alfred (Wythenshawe)
Stewart, Rt. Hn. Michael


Howarth, Robert (Bolton, E.)
Morris, Charles, R. (Openshaw)
Swain, Thomas


Hoy, James
Morris, John (Aberavon)
Swingler, Stephen


Huckfield, L.
Moyle, Roland
Taverne, Dick


Hughes, Rt. Hn. Cledwyn (Anglesey)
Mulley, Rt. Hn. Frederick
Thomson, Rt. Hn. George


Hynd, John
Newens, Stan
Thornton, Ernest


Irvine, A. J. (Edge Hill)
Noel-Baker, Rt. Hn. Philip(Derby,S.)
Tinn, James


Jackson, Colin (B'h'se &amp; Spenb'gh)
Oakes, Gordon
Tomney, Frank


Jackson, Peter M. (High Peak)
Ogden, Eric
Tuck, Raphael


Johnson, James (K'ston-on-Hull, W.)
O'Malley, Brian
Urwin, T. W.


Jones, Dan (Burnley)
Oram, Albert E.



Jones, Rt. Hn. Sir Elwyn (W. Ham)
Orbach, Maurice
Wainwright, Edwin (Dearne Valley)


Judd, Frank
Orme, Stanley
Walker, Harold (Doncaster)


Kelley, Richard
Oswald, Thomas
Wallace, George


Kerr, Russell (Feltham)
Owen, Dr. David (Plymouth, S'tn)
Watkins, David (Cornell)


Leadbitter, Ted
Page, Derek (King's Lynn)
Watkins, Tudor (Brecon &amp; Radnor)


Lee, John (Reading)
Pannell, Rt. Hn. Charles
Wellbeloved, James


Lewis, Ron (Carlisle)
Parker, John (Dagenham)
Willey, Rt. Hn. Frederick


Lomas, Kenneth
Pavitt, Laurence
Williams, Alan (Swansea, W.)


Luard, Evan
Pearson, Arthur (Pontypridd)
Williams, Alan Lee (Hornchurch)


Lyon, Alexander W. (York)
Pentland, Norman
Williams, Mrs. Shirley (Hitchin)


McCann, John
Perry, George H. (Nottingham, S.)
Williams, W. T. (Warrington)


MacColl, James
Prentice, Rt. Hn. R. E.
Wilson, William (Coventry, S.)


MacDermot, Niall
Price, Chirstopher (Perry Barr)
Winnick, David


Macdonald, A. H.
Price, Thomas (Westhoughton)
Winterbottom, R. E.


Mackenzie, Gregor (Rutherglen)
Pursey, Cmdr. Harry
Woof, Robert


Mackle, John
Randall, Harry
Yates, Victor


Maclennan, Robert
Roberts, Albert (Normanton)



McMillan, Tom (Glasgow, C.)
Robinson, W. 0. J. (Walth'stow, E.)
TELLERS FOR THE NOES:


MacPherson, Malcolm
Roebuck, Roy
Mr. Waiter Harrison and


Mahon, Peter (Preston, S.)
Rogers, George (Kensington, N.)
Mr. Neil McBride.


Mallalieu, E. L. (Brigg)
Ross, Rt. Hn. William

Question proposed, That the Clause, as amended, stand part of the Bill.

10.0 p.m.

Mr. MacDermot: I am now in a position to answer the hon. Gentleman's question. Not only will it save me writing to him, but, perhaps more important, I can get the answer on the record.
Betterment levy is allowable as a deduction in computing the profits of a dealer in land under the ordinary Income Tax law—namely, under Section 137 of the 1952 Act—as expenditure incurred wholly and exclusively for the purposes of his trade. It is correspondingly allowed for the short-term tax because the Case VII provisions say in Section 13(1) of the 1962 Act that the chargeable gain is to be computed as if the transaction had been an adventure in the nature of trade.

Mr. Graham Page: I am very grateful to the Financial Secretary for that explanation. It sets our minds at rest, to some extent. But there is a matter which has not been mentioned at any length on the Amendments, although I think that it has been mentioned slightly.

It is the different way in which the Clause deals with long-term and short-term capital gains.
The Clause deals with the relationship between long-term capital gains and the betterment levy, and long-term capital gains only are taken into account in the Clause. This is because the Clause refers to Part III of the 1965 Act, whereas short-term capital gains come under the Finance Act, 1962, and Part II of the 1965 Act. In respect of a gain made upon disposal of land, the double taxation as between long-term capital gains and betterment levy is avoided by silhsection (1) of the Clause.
Tax is chargeable not only on longterm gains. It is still chargeable on short-term gains. There is still the possibility of double taxation in that case. The Bill recognises that there can be double taxation in such a case by the provisions in paragraph 14 of Schedule 14. which bring certain short-term capital gains within the compass of Clause 31(1), but only those of a certain kind.
I will not detain the Committee by reciting the relevant sections, or how I come to the conclusion which I am about


to state, but I am sure that the Financial Secretary will correct me if my conclusion is wrong. What it comes to is that the only short-term capital gains which come within the Clause, and, therefore, escape betterment levy as well as short-term Capital Gains Tax, are gains from land acquired between 6th April, 1964, and 5th April, 1965, and sold or leased between 6th April, 1967, and 5th April, 1968. Those seem to be the only ones which are exempt from double taxation.
Having tried to spell it out in that form, I will again give an example to illustrate my meaning. I will give up saying that I bought the land. Let us suppose this time that the hon. and learned Gentleman buys it—a large Victorian house with a large garden for £10,000, the current use value being, say, £9,000 for the house and £1,000 for the garden. He then converts the house into five flats at a cost of, say, £3,000. He gets planning permission to build another five flats in the garden. The conversion of the house creates a value of, say, £3,000 per flat. That brings us up to £15,000 for the house. The conversion not being a material development —an alteration from a dwelling-house into flats—the current use value has, therefore, been increased by £6,000.
Suppose that the hon. and learned Gentleman also gets planning permission to build in the garden and that with the planning permission the value of the garden has trebled, as well it might in a case of this sort. He then sells out at a nice profit at, say, £18,000, £15,000 for the house and £3,000 for the garden. Had he bought it in the summer of 1964, and if he were to sell it this summer, longterm Capital Gains Tax would be payable on the increase in current use value, which I have given as £6,000, less the £3,000 expenditure. He would be paying longterm Capital Gains Tax on £3,000, and betterment levy would be payable on the net development value, which on my figures would be £2,000. That represents 30 per cent. on £3,000 and 40 per cent. on £2,000—in all, if my mathematics is right, taxation of about 33 per cent. on his gain.
If that happened at some other dates than those which I have mentioned—if the conversion were carried out now and the purchase and sale were carried out after April, 1967—Income Tax would be

payable on the whole of the gains. If there was a gain of £5,000, Income Tax on that is £2,062 10s. In addition, betterment levy would be payable on 40 per cent. of £2,000 of that £5,000, which comes to another £800, making a total tax of £2,862 10s. on the gain of £5,000; in other words, a tax of nearly 60 per cent.
I am sure that the hon. and learned Gentleman will find somewhere that I have not allowed for something. It may be the one-tenth at current use value, or something of that sort. However, in round figures, the short-term Capital Gains Tax payable on a transaction which occurs after April, 1967, gives rise to about double the taxation which would be involved if it occurred before that date.
Why should only a very small part of short-term capital gains be excluded from the double taxation and, otherwise, the whole of it be included? That seems to me to be a very great hardship, because the Bill recognises elsewhere that, when Capital Gains Tax is charged as a longterm tax, it does not result in double taxation. Why has short-term Capital Gains Tax on capital gains which occur after April, 1967, not been exempted in the same way as long-term capital gains?

Mr. MacDermot: The hon. Member for Crosby (Mr. Graham Page) correctly stated the general point at the outset of his remarks. It is that, when we are dealing with short-term capital gains, we are dealing with something which has been regarded from the outset, including when it was introduced originally by the party opposite, as income. That is what short-term capital gains are, and that is the way in which they are treated.
The distinction about which he asks is essentially that between short-term and long-term capital gains. One is regarded as being identical with income and taxed as such, whereas the other is regarded as being something different from income which should now be subject to taxation, although at a lower rate than income. It is from that that the different treatment springs.
As I explained in what I said about the Amendments which we were discussing a moment ago, we decided that the right relationship between betterment levy and taxes on income—and I itemised short-term gains as being one of the taxes on income—would be by following the


ordinary rules and allowing the taxpayer to treat any payments of betterment levy as a deductible expense. That is the general rule for purposes of short-term gains.
As the hon. Gentleman pointed out, there is one set of provisions in the Bill which are of some complication and which deal, in effect, with transitional provisions. It is right to say that the transitional difficulty arises from the alteration of the period which is relevant for determining what is a short-term and what is a long-term gain.
I was unable to follow in my head the complications of the example which he gave. However, I think that the error which he made was in failing to allow the betterment levy as a deduction in arriving at a computation of the increase in income. In any event, I assure him that I will study it carefully, and I undertake to write to him setting out a full explanation in reply to the example which he gave. As for the general principle, it is as I have stated.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Orders of the Day — Schedule 14.—(CHARGEABLE GAINS: LAND IN GREAT BRITAIN.)

10.15 p.m.

Mr. MacDenmot: I beg to move Amendment No. 101, in page 89, line 2, to leave out paragraph 14 and to insert:
14. Section 42(3) of the Finance Act 1966 (relief by reference to estate duty in respect of a gift inter vivos) shall not apply to a gift inter vivos consisting of land unless the current use value of the land at the time of the death exceeds the sums within paragraphs (a) and (b) of paragraph 4(1) of Schedule 6 to the Finance Act 1965 which, if the donee had disposed of the asset at the time of the death, would have been allowable in computing the gain accruing on that disposal and, if the said section 42(3) does so apply, that excess shall be the excess referred to in the expression 'the said excess' in the provisions of the said section 42(3) which determine the proportion of estate duty by reference to which relief is to be given.
The purpose of the Amendment is to correct a drafting error in paragraph 14. The purpose of Section 42(3) which the paragraph seeks to amend is to allow the donee to include the Estate Duty referable to the excess in the cost allow-

able to him for Capital Gains Tax purposes when he comes to dispose of the assets.
As originally drafted the provision in the paragraph did not attain its object, and the purpose of the Amendment is to achieve the correct result by providing in effect that Section 42(3) of the 1966 Act is not to apply at all unless there has been an increase in the current use value of the land that was the subject of the gift inter vivos between the date of the gift and the date of the donor's death, and, secondly, where there has been such an increase, its amount is to be the figure taken into account as the excess in determining the allowable proportion of the duty in accordance with the fraction laid down in Section 42(3), namely, the proportion of the duty which the excess bears to the principal value.

Mr. Graham Page: This seems a bit stingy. However the Financial Secretary argues this, it is cutting down the allowance of Estate Duty as against betterment levy. It is cutting it down to that part of Estate Duty which is payable in respect of the increase in the current use value between the date of the gift and the date of the death. Why should not the whole of the Estate Duty be allowed against eventual payment of betterment levy?
The eventual vendor is being charged betterment levy or Capital Gains Tax on the whole of his gain—betterment levy on part of it, and Capital Gains Tax on another part of it—and he should not be retaxed on any sum which he has paid in Estate Duty. It should not be a pruning-down of the sum because it refers to a little bit outside the difference between current use value at the date of the gift and the date of death. It should be an allowance for the whole of the Estate Duty which he has paid in respect of that gift.

Mr. MacDermot: In future, when capital gains on disposals of land containing development value become chargeable under the provisions of this Schedule by reference to changes in the current use value, the amount of Estate Duty allowable under Section 42(3) obviously should be cut down to the part of the Estate Duty paid which is referable to the increase in current use value between the date of the gift and the date of the


death. This seems the right purpose to achieve. It was not achieved in the original drafting, but is now by the Amendment.

Amendment agreed to.

Question proposed, That this Schedule as amended, be the Fourteenth Schedule to the Bill.

Mr. Temple: It would be appropriate for me to rise to pay a real tribute to my hon. Friend the Member for Crosby (Mr. Graham Page) for the detailed examination which he has been able to give both to this Schedule and to Clause 31. The Committee should remember that the blame for all these complications lies fairly and squarely with the Government. The Financial Secretary said that these complications were inevitable. Of course they were, as soon as the Government decided that betterment levy was not to be treated as tax and as soon as the Government decided to have a Land Commission levy as well as a Capital Gains Tax these complications were inevitable.
We have made it quite clear that we do not believe in the Land Commission or the betterment levy; we believe that a Capital Gains Tax could take the place of both, with none of the complications of Clause 31 or Schedule 14. The whole thing could be taken care of by way of the Capital Gains Tax. The Government are entirely responsible for the complications and have further responsibility for placing formidable burden on all those who seek to

develop land, because they will not know where they are.
I have been extremely interested in the last two debates on this matter but they have been almost incomprehensible to those of us who have been trying to follow them. I thank the Financial Secretary for his offer to give technical assistance to those who are trying to follow these matters, but I hope that, in advance of further debates, if the hon. and learned Gentleman is to put questions of this complication before us he will circulate those who may be interested in the explanation of these technical matters.

Mr. MacDermot: After two-and-a-half years in this office I am fully aware that the Government can never win. If we introduce a simple, clear measure which is readily understood—such as Selective Employment Tax—we are told that we have produced a half-baked, ill-thoughtout, ill-digested, rough and brutal measure. If, having listened to those complaints, we go home and work out something with infinite refinement and care, which meets every point with justice, we are told that what we have done is to confuse utterly the taxpayer with something which is hoplessly complicated and impossible to understand.
The only thing I can agree with the hon. Member for the City of Chester (Mr. Temple) about is that the hon. Member for Crosby (Mr. Graham Page) is deserving of tribute.

Question put and agreed to.

Schedule, as amended, agreed to.

Clause 32 ordered to stand part of the Bill.

Orders of the Day — Schedule 15.—(PROVISIONS CON SEQUENTIAL ON BETTERMENT LEVY.)

Mr. Graham Page: I beg to move Amendment No. 192, in page 92, line 5, at the end to insert:
2. For the purposes of Case VIII of Schedule D the amount of any rent payable to the landlord in any year shall be reduced by the amount of the betterment levy charged on the capital value of the rent attributable to that year and the amount so attributable shall in the case of a lease for a term of not less than fifty years be one-fiftieth of the amount of the betterment levy charged on the capital value of the rent and in the case of a lease for a term of less than fifty years shall be the fraction of such amount corresponding to the number of years comprised in the term.
The Schedule deals with betterment levy on leases, especially in connection with premiums. Under Case B of the Land Commission Act, 1967, the betterment levy is chargeable on the letting of property. That betterment levy is payable when the property is let; it is payable at that time upon the premium, if any, and upon the capitalised value of the rent; it is payable regardless of the fact that the money under the lease, so far as it is rent, has not yet been received by the levy payer, and payable regardless of the fact that it amounts to double taxation. The rent and the premium are subject to Income Tax. The premium and the capitalised value of the rent are subject to the betterment levy. They should both have been relieved to that extent of betterment levy.
I am sure that the disastrous effect of this policy upon all forms of leases and the whole system of leasehold tenure has not been generally recognised. Who in his right mind would let property when, for the privilege, he had to pay 40 per cent. of the capitalised value of the rent, plus the premium, plus Income Tax at the outset on the premium—subject to the one-fiftieth formula—and tax on the rent? I cannot imagine what he would have left. The Bill offers him, in this Schedule, the slight crumb of comfort that he can take the betterment levy into account against the premium, but why not also against the rent?
The Amendment seeks to allow the levy payer to take the betterment levy into account against the tax paid on the rent. He has to pay Income Tax on the premium and on the rent and betterment

levy on the premium and capitalised value of the rent and it seems illogical that he should be entitled to a concession on the premium and none on the capitalised value of the rent. The Amendment seeks to grant him that latter concession.

Mr. James Allason: I tried to approach this matter differently in our debates on the Land Commission Bill and argued that the right to receive rent should be valued but the value would differ according to the taxpayer's position. If someone pays no tax, the right to receive £100 a year for 20 years is substantial, but if he pays the highest rate of Surtax, that right is of different value. I wanted that taken into account, but we lost. We now have the opportunity of putting the matter right.
If the cost of the levy to the taxpayer is allowed in proportion over the years as a deduction from his assent, there will be some justice, but this is not offered by the Government. It is fair that it should be offered and I therefore hope that they will allow this as a deduction from the taxpayer's liability.

Mr. MacDermot: This proposal is quite unacceptable to the Government. If it were accepted, its repercussions would go far beyond the scope of the Amendment. For example, it would be extremely difficult to refuse similar allowances to a lessee who carried out material development in respect of which he paid betterment levy on leased premises which he used for his business. It could be argued that, because the development of the land would increase his profits, he should be allowed to spread the levy over the remainder of his lease, or 50 years if shorter, and get allowances accordingly in the assessment of his profits.
Equally, it would be difficult to distinguish between the trader who developed business premises on a long lease, such as one for 999 years, and the trader who developed premises of which he owned the freehold. The amount of the levy would he the same in both cases. It would then be argued that the freeholder had as strong a claim to allowances in respect of levy spread over the 50 years as the long leaseholder.
Third, there is the case of the freeholder who develops his property and


pays levy with a view to letting the property at an enhanced rent. He also would have a claim to allowances in respect of the levy against rent spread over 50 years. We recognise that it would be harsh to charge Income Tax or Corporation Tax on the rents, and, at the same time, to charge levy on the capital value of the right to receive the rents, with no allowances in respect of levy for Income Tax purposes or in respect of tax for levy purposes.

10.30 p.m.

But the provisions of the Land Commission Act afford a solution to this problem, and it may be that hon. Members supporting the Amendment are not aware of the effect of these provisions. Levy, under Case B of the Land Commission Act, which applies to leases, is charged on the amount by which the consideration for the disposition exceeds the sum of the base value realised by the disposition and the amount of any expenditure on improvements or ancillary rights in so far as it has increased the development value realised by the disposition. Fortunately, for the present purpose we have only to consider the consideration for the disposition.

Among the factors which have to be taken into account in calculating the consideration for the disposition—it will be the only factor in many cases—is the capital value at the relevant date of the right to receive the rent. This has to be calculated
by reference to the price which that right might reasonably be or have been expected to fetch on a sale in the open market at the time by reference to which the value falls to be calculated".
That is paragraph 5 of Schedule 6 to the Land Commission Act. In effect, it means that an allowance for tax on the rents will be made in arriving at the amount on which levy is payable. Therefore, the proposal to give an allowance for levy against rents, besides being open to the objection which I have already raised in regard to repercussions, would be open to the further objection that, in conjunction with those provisions of the Land Commission Act, there would, in effect, be a double allowance.

The hon. Member for Hemel Hempstead (Mr. Allason) raised a separate point, that, in arriving at the capital value

of the right to receive a rent, the market, and, in consequence, the valuation office, would not take account of the actual rate at which the lessor is liable to tax; it would merely make an allowance at an average rate which one might take as being about 8s. in the £. He argues that it is possible that, when the method of valuing rights to rents for levy purposes is considered, it may be said that, where the lessor is liable to Surtax, an additional allowance in respect of Surtax should be made in valuing the right to the rent.

It would be impossible for levy purposes to take account of the actual rate at which a particular lessor is liable to tax. Not only might that rate vary from year to year for the same person, but the lessor might at any time sell his interest in the property, and the rate at which the purchaser was liable to tax might be quite different from that to which the original lessor was liable.

I think that the solution to the problem is that, if a landlord proposing to grant a lease on terms which reflect a heavy development value is liable to Surtax and thinks that he would be hit by absence of any allowance in respect of Surtax, it would be open to him to grant the lease at a premium and a nominal rent instead of a rent alone. In that event, most of the levy would be deducted from the premium before calculation of the amount on which Income Tax and Surtax are payable.

For the reasons which I have already explained, I must advise the Committee to reject the Amendment.

Mr. Graham Page: The hon. and learned Gentleman has said that the Amendment might give a double allowance. After all the double taxation provisions we have had in the past couple of hours that would be so refreshing that I am almost tempted to take the Amendment to a Division.
But the point is technical. I am grateful to the hon. and learned Gentleman for his explanations and for drawing attention to the parts of the Land Commission Act which may give a solution. I would like the opportunity to study what the Financial Secretary said, as it is difficult to take it in as he says it. I do not blame him, for it is a technical


subject. I am sure that the rest of the Committee would also like to read what he said before coming to a decision. I therefore beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Graham Page: I beg to move Amendment No. 204, in page 93, line 33, at the end to add:
3. For the purpose of subsection (1) of section fifty of the Finance Act 1940 (by virtue of which an allowance for a company's liabilities is to be made in valuing its assets for the purposes of section forty-six or section fifty-six of that Act) any liability of the company to corporation tax and betterment levy which the company would have incurred had all its assets been disposed of for their market value at the date of the death of the deceased shall be taken into account as if it were an actual but contingent liability at the date of the death; and the Commissioners shall make an allowance to reflect such liability in addition to allowances (if any) which may fall to he made under subsection (3) of section thirty of the Finance Act 1954 (which makes other amendments of, or affecting, section fifty-five of the Finance Act 1940).
That looks a rather formidable set of words, but the point is fairly simple and one which I hope that the hon. and learned Gentleman will concede to us. It certainly has the merit of being fair.
There is relief against betterment levy on land which within the previous six years has suffered Estate Duty. That comes into the Land Commission Act in Sections 69, 70 and 71 and Schedules 7 and 8. It is, therefore, recognised that when land has suffered Estate Duty there should be an allowance against betterment levy or an allowance in the assessment of betterment levy for that amount paid in Estate Duty. I submit that that shows the intention of the creators of betterment levy that in ascertaining the net development value on which betterment levy is to be assessed one must deduct such sums as have already been paid away in some form of taxation.
My argument has always been that betterment levy should not be charged on any sum which has already borne tax, whether Income Tax. Capital Gains Tax, Corporation Tax, or Estate Duty. That would be fair, but I appreciate that the Government will not accept that argument. But surely they cannot refuse the bare minimum which is embodied in the Amendment? That is that there should

be no tax upon a tax—that one should not tax the money which has been paid away in tax. That is so when the owner of land has died and his estate has suffered Estate Duty, and then the land is sold within the next six years; in such a case, the Estate Duty is deductible from the net development value on which betterment levy is chargeable on the disposal of the property.
But what if the deceased did not own the land but had shares in the company which owned it? In anticipation of betterment levy on disposal, that possible liability would be reflected in the value of those shares, and, therefore, Estate Duty would be paid on a reduced value, a value reduced by that reason. That is so if one values the shares on the normal market basis, whether they be quoted shares or shares which have a value by having changed hands privately over recent years.
But there are the occasions when Estate Duty must be calculated not on the market value of the shares in a company or the quoted value of those shares, but on the asset value of the company. If the deceased has a controlling interest in the company, then the shares have to be valued on an assets valuation under Section 55(1) of the Finance Act, 1940. That means that each asset is valued, including land held by the company, the liabilities are deducted, and the result is divided by the number of shares issued. I am sorry if I am spelling it out in an elementary way. I have to do so to get my own argument into my head.
That valuation does not take into account the taxes which may arise on the disposal of those assets. It is not permitted in an assets valuation to take into account such a tax as betterment levy on the sale of the land. I think that it should do so. Amendment No. 204 would allow it to be so taken into account, and this would do no more than put a deceased shareholder on the same footing as a deceased individual owner of land. There seems no reason why one should make the distinction between the two. The shareholder who controls a company which owns land is put on the same footing in the valuation of his estate as the individual owner of land. Therefore, he should be put on the same footing so far as the betterment levy is concerned, and the Estate Duty allowance of betterment levy given by the


Land Commission Act should be allowed in such a case.

Mr. Allason: I have a constituency case which exactly fits this proposal. I am glad that the Joint Parliamentary Secretary to the Ministry of Housing and Local Government is present, because he knows the case. He has been very concerned about it and has racked his brains to find out how he could give the relief in this case which he agreed to be necessary. He has not succeeded in gettting the Government to put something in the Finance Bill, but I hope that he will nudge his hon. and learned Friend and get this Amendment passed, because I know that he is in full sympathy with it.
My constituent died before the coming into effect of the Land Commission Act. He owned approximately 35 per cent. of the shares of a family company having assets including a certain piece of land, which was valued by the district valuer for Estate Duty purposes at £22,000, and the reason for that was that it was expected that development of the land would take place. It was of little value except for development. Estate Duty was then paid at the rate of 50 per cent. on the deceased's assets in the land-35 per cent. of the £22,000. If the property is now developed, the levy will have to be paid by the company on the full value, which will be perhaps £20,000 out of that £22,000, at the rate of 40 per cent.
Had the deceased owned the whole of the land, he would under Schedule 7 of the Land Commission Act have received a rebate. To the extent that he has paid 50 per cent. Estate Duty, which is allowable, he would have paid only as much as he would have paid if he had first paid the levy and then was assessed for Estate Duty on the remaining value. To show roughly how it would work on £1,000, a 40 per cent. levy would be taken first, and then, on the remaining £600, 50 per cent. Estate Duty would be paid.

10.45 p.m.

So, in total, he would pay 40 per cent., plus 30 per cent.; 70 per cent. would be paid in combination of Estate Duty and levy on the development value of the land. This is the effect of Schedule 7 to the Land Commission Act; it does it the other way round, but it achieves

that situation. The 50 per cent. has already been paid, and, therefore, it reduces the 40 per cent. levy to only 20 per cent. in order to achieve the final 70 per cent. which is paid in this case.

However, not so, because the land happens to be owned through a company there is no such rebate given at all, and so, that 50 per cent. having already been paid, another 40 per cent. will be taken, a total of 90 per cent. in this case. In this case, of course, it happens that the rate of Estate Duty is 50 per cent. Suppose the rate of Estate Duty is very much higher, then it is possible for an amount of 100 per cent. tax to be paid by the effect of dying and having to pay the levy afterwards. This, clearly, is quite improper.

Here we have a chance of putting it right. This is the opportunity now before the Committee. Therefore, I hope that the Government will accept this very reasonable proposal.

Mr. MarDermot: As the hon. Gentleman the Member for Crosby (Mr. Graham Page) explained, this Amendment relates to the case where shares and debentures are valued not on market value but by reference to the value of the assets of the company, and, broadly speaking, these are controlling shareholdings in unquoted companies.
The Amendment provides for a deduction in the Estate Duty valuation in such cases in respect of Corporation Tax and betterment levy to which the company would have been liable if all its assets had been disposed of at market value at the date of the death of the deceased. Existing law and Revenue practice is to give an allowance under Section 30(3) of the Finance Act, 1950, for contingent liability to Corporation Tax on unrealised gains. Of course, the company pays Corporation and not Capital Gains Tax on its capital gains.
Where the death occurred on or after 6th April, 1967, if the assets of the company included land with an unrealised development value, betterment levy presumptively payable on its realisation would be regarded as a contingent liability of the company for the purposes of Section 50(1) of the Finance Act, 1940. In both these cases allowance will normally be made in full for any Corporation Tax or levy which has been incurred


by the time the case is considered by the Estate Duty Office, and in other cases the deduction will be properly discounted, that is, by reference to the probabilities in regard to future disposals of the assets and their probable timing, which would give rise to liability to tax or levy. Unless there is any reason to foresee disposals in the reasonably near future, the deduction would normally be small.
It may be that these provisions of the existing law, which, of course, has not yet been applied to a significant number of cases, will give the supporters of the Amendment substantially what they want. If the position is that they are assuming that no deduction would be given for contingent liability for betterment levy because of the exclusion from Section 50(1) of the 1940 Act of liabilities
incurred otherwise than for the purposes of the business of the company wholly and exclusively
I can only say that the view of the Revenue is that those words would not operate to exclude betterment levy. But if the purpose of the Amendment is to secure an allowance for the full amount of Corporation Tax and the betterment levy, which would be possible on the basis of a notional disposal on the date of the death, that would be unreasonable. The liability to Corporation Tax would be postponed indefinitely if the assets in question were not realised, and in these circumstances there seems little merit in giving an allowance for liability at the date of death.
The betterment levy is not payable until there is realisation of development value and, if that is deferred over a significant period, here again there is no justification for giving an allowance for the full notional liability at the date of death. There will be a deduction for contingent liability to betterment levy and, of course, for any liability to levy which has actually been incurred but not for the full amount of a notional disposal at the date of death.
If the general principle satisfies the hon. Member for Crosby, but he is concerned with whether the objective is made clear in the provision, I gladly undertake to look further at it. I cannot agree to accept the Amendment, or to go as far as appears to be suggested by allowing

a deduction for the full amount on a notional disposal, but I will gladly also consider this provision in relation to the particular case to which the hon. Member for Hemel Hempstead (Mr. Allason) has referred.

Mr. Allason: The hon. and learned Gentleman has said that this will be all right after the 1st April, 1967, but he has not addressed himself to the situation in the case of those who died before that date, which is the case I cited. The whole of Part II of Schedule 7 of the Land Commission Act is dealing with cases where death has taken place before that date. Basically, satisfactory allowances are made where the asset is owned outright, but the case I quoted is wholly one where, because the property is owned through a company, that provision cannot take effect.
I urge on the hon. and learned Gentleman that this is a very real necessity. Will he please have a look at it in relation to the known case which his hon. Friend the Joint Parliamentary Secretary to the Ministry of Housing and Local Government, sitting beside him, can tell him about?

Mr. MacDermot: There are obviously complications about that case. The hon. Gentleman has been in correspondence with my hon. Friend the Joint Parliamentary Secretary to the Ministry of Housing and Local Government and I will gladly look into it, consider it with him and get in touch with the hon. Gentleman. If what he has asked is right, and it appears to call for an amending provision, I will consider whether we can meet the point on Report. But from his argument tonight I do not at the moment see the need for an Amendment.

Mr. Graham Page: The difficulty in the case put by my hon. Friend the Member for Hemel Hempstead (Mr. Allason) is that it stretches over the date 1st April, 1967. Part of it occurs before and part of it afterwards. To that extent perhaps an Amendment is necessary. Listening to the Financial Secretary, it appears that he has given me all I want, but I cannot be certain. I would like to read what he has said and compare it with my Amendment.
On the basis that I might approach him and ask for further explanations to


assist me, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Schedule agreed to.

Clause 33 ordered to stand part of the Bill.

Orders of the Day — Clause 34.—(BASIS FOR DETERMINING UNILATERAL RELIEF FROM DOUBLE TAXATION.)

Mr. Stephen Hastings: I beg to move Amendment No. 166, in page 38, line 40, at the end to insert:
(2) In applying the provisions of Schedules 16 and 17 to the Income Tax Act 1952, as subsequently amended, the following shall have effect

(a) where a person possesses a source of foreign income in respect of which there is an excess of foreign tax, such excess shall be deemed to be foreign tax in respect of any other foreign income to which he is entitled for the same year assessment and be applied in relief of his United Kingdom tax liability in respect of that other foreign income;
(b) in this section 'excess of foreign tax' shall mean that part of the foreign tax which cannot be allowed as a credit because the foreign tax exceeds the United Kingdom taxes applicable to the particular source of foreign income.
The point which I seek to make is not new. It was debated last year and on the Finance Bill in 1965, but it is a specific point. In those circumstances, I do not intend to go deeply into the merits of overseas investment as a whole, except to remark that I have tried, in the context of this matter, to study the Reddaway Report, which is an interim report and important in this connection, but I have found it so hedged about with qualifications as virtually to defy interpretation.
This is, in a sense, its value. It seems to show conclusively that one cannot quantify exactly the effects of overseas investment on the balance of payments, much less explain the reasons for overseas investment in purely statistical terms. Here one is concerned with a range of business judgments which are simply not susceptible to this kind of analysis. That was the effect which this Report had on me.
I turn to the specific matter which is raised in the Amendment. The object

of the Amendment is that foreign taxes paid in respect of all overseas income should be averaged for the purposes of double taxation relief so that where the foreign tax in respect of a particular source of income exceeds the United Kingdom tax payable on the same income, the excess can be credited against the United Kingdom tax payable on any other source of overseas income.
A simple example of what I mean is a United Kingdom company which receives dividends from, let us say, 100 units from investments in South Africa and Australia. The United Kingdom company would have paid tax in South Africa at about 35 per cent., leaving 5 per cent. upon which United Kingdom tax is levied, and in Australia the United Kingdom company would have paid about 50 per cent., leaving a surplus, if I can call it that, of about 10 per cent., for which the company would get no relief at all at the United Kingdom end.
The effect of my proposal would be that the United Kingdom company should be allowed to take both these blocks of dividends together—that is to say, 100 units in South Africa and 100 units in Australia—upon which it would have to pay United Kingdom tax at 80 per cent., but the credits, aggregated, 35 per cent. plus 50 per cent., would add up to 85 per cent. That is still an excess, but it would mean that the United Kingdom company would not have to pay tax on the 5 per cent. from the South African example.
I remind the Chief Secretary of the debate on this issue on the Finance Bill of 1965. On Report, my hon. Friend, the Member for Honiton (Mr. Emery) moved an Amendment which is substantially—in fact, almost exactly—the same as this. During his speech he drew attention to what the Financial Secretary had said in Committee on 22nd June, 1965, which was:
I want to make clear that I am not giving an undertaking that I will bring forward Amendments, but I shall be glad to consider the matter further.
No Amendments were brought forward by the Government, but when he replied to that debate the Financial Secretary said:
We do not rule out on principle legislating on this subject.
The hon. and learned Gentleman continued to point out the difficulties which,


of course, were as obvious to my hon. Friend when he raised this matter two years ago as they are to me now. Nevertheless, the hon. and learned Gentleman did not deny that the issue was substantial and he finished his speech by saying that although the problems were involved,
the Government have decided not to legislate on this matter this year but to look carefully into all the implications during the coming years."—[OFFICIAL REPORT, 12th July, 1965; Vol. 716, c. 220–2.]
That meant, during the year 1966.
I believe—my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) will probably confirm this—that last year there was another debate on an Opposition Amendment on the same matter and that again the Government said that they would consider it with a view to legislation. So there have been two debates on this matter and the time seems to have come when we should expect something concrete, and I hope that we shall hear from the Chief Secretary that the Government have now at last determined to grant us the point.

11.0 p.m.

The United States tax system has been used as a precedent and as a justification by the Government for the major tax changes which they introduced two years ago, and that example has been frequently cited. Whether those tax changes are beneficial for this country or not, if the precedent is justified, it is reasonable and fair for us to adopt the facility which exists in the United States tax system for averaging foreign taxes, which is substantially the point of the Amendment.

This provision bears a relationship to the so-called overspill allowance. Two years ago, the Government introduced discriminatory fiscal measures against overseas investment and then brought in a form of allowances to last over a period of five years only. The argument is that if there is inequity—and the very existence of these overspill allowances implies that there is—then inequity cannot be remedied by temporary measures. The Amendment offers the Government a partial solution to their difficulties and embarrassment in this connection. This is the third time which we have debated this matter.

In the circumstances, we should expect the Chief Secretary to regard the Amendment with sympathy and I hope that he will accept it.

Mr. John Biffen: My hon. Friend the Member for Mid-Bedfordshire (Mr. Hastings) has moved this Amendment with great moderation, and I want briefly to endorse what he has said. When the Corporation Tax was first created, in the White Paper, I think published in November, 1964, there was then no reference, as I recall, to the consequences which that tax was expected to have for overseas investment. It was largely argued along the lines that it would have the effect of encouraging retained profits and discouraging distributions. It was argued essentially in a domestic context.
Subsequently, these other arguments were adduced, that it would have these consequences upon overseas investment, but I suspect that that was an argument emanating more from the Treasury than some of the other advisers, who were at that time prominent in the counsel of the Government. There must be a case for reflecting as to whether the effect that this will have on overseas investment has been far harsher than anyone really foresaw at that point of time.
The uncertainty that the Government had has been very clearly underlined by the quotation which my hon. Friend has mentioned from the Treasury spokesmen on the two previous occasions when this has been debated. Although I fully recognise that one cannot easily discern a pattern in the general range of overseas taxation, there is plenty of evidence that many of the developing countries have very high rates of taxation on British enterprises operating in those countries.
If we are concerned about developing investment in those parts of the world normally referred to as developing countries, then in a very modest way, and I put it no higher than that, we can contribute to United Kingdom private investment by allowing the kind of averaging provision which my hon. Friend has mentioned, and I hope that this consideration will be borne in mind, along with the points raised by my hon. Friend when the Chief Secretary comes to answer the debate.

Mr. Diamond: The hon. Member for Mid-Bedfordshire (Mr. Hastings) raised


this matter with moderation, and he has been supported with the knowledge and persuasiveness of his hon. Friend the Member for Oswestry (Mr. Biffen). The hon. Member for Mid-Bedfordshire referred to the Reddaway Report and said that he had some difficulty in understanding what it was about, as it was so hedged with limitations. If I can help in a very general way, what the Reddaway Report says is that everything that we said about overseas investment is right, and everything that the Opposition said is wrong. That is a broad guide—that is the intelligent man's guide to the Report.

Mr. Hastings: If the right hon. Gentleman really thinks this is the conclusion of the Reddaway Report then he is just as fogged as I am.

Mr. Diamond: I was merely offering it as a guide to the hon. Gentleman. It is on a more narrow point that the question of overseas investment arises. The hon. Gentleman next referred to the debates in 1965, with which I had happily provided myself.
I opened HANSARD to see what my hon. Friend the Financial Secretary said and I read from col. 1561. The first sentence was all that I read, and as the Committee will realise, having read that, I closed the book very sharply, because the first sentence read:
Mr. MacDermot: I rise at this early stage only because I find that all my efforts to staunch the flow of generosity on the part of the Treasury are of no avail."—[OFFICIAL REPORT, 22nd June, 1965; Vol. 714, c. 1561.]
It is not surprising that my right hon. Friend the Chancellor intervened very shortly afterwards to put the matter right. The hon. Gentleman gave me a very helpful example of the exact point which the Amendment seeks to meet, and of the exact principle which this Act does not seek to meet.
The hon. Gentleman gave me an example not of avoidance of double taxation. The principle that this measure seeks to meet in this respect is the avoidance of double taxation. It does not seek to meet the entirely different principle that the hon. Gentleman propounded, namely, that the United Kingdom investor should in effect, be required to pay the lower of two taxes. If he pays the higher of two taxes, but does not pay twice over, the

point of paying double taxation is met and that is all we are considering.
The hon. Gentleman referred to Australia and the rate of 50 per cent. and the relief given had the result that tax borne on that income was 50 per cent. This was income earned in Australia by a resident company in Australia of which the shareholder—let us say the major shareholder—was an English resident company. I see no reason, and I expect that other Australian companies see no reason, why one particular Australian company should bear tax at less than 50 per cent. and the other Australian company should bear tax at 50 per cent.
As the hon. Gentleman will perceive, the effect of the legislation unamended is to give such relief that the double tax borne on the English company in respect of that income is no more than 50 per cent., just as much as in the other case it was no more than 40 per cent.—the higher of 35 and 40, as in this case it is the higher of 45 and 50. I am explaining why it is that the legislation is not intended to meet the point which the hon. Gentleman is making. Therefore, as there is an issue of principle, and so long as we understand each other, I do not think that I need to go over all the points which arise out of the Amendment.
It is certainly true, as the hon. Member for Oswestry (Mr. Biffen) said, that if this Amendment were to be accepted it would be an encouragement to British investors to invest in low tax countries abroad. But it is not intended to introduce that bias. In those circumstances, I gather that it is not the wish of the hon. Gentleman that we should rehearse all the points that have been adequately debated previously. There is really an essential difference of principle. I have explained what the hon. Gentleman's principle is. I have explained the Government's principle. In those circumstances, I cannot recommend the Committee to accept the Amendment.

Mr. Patrick Jenkin: I can only say that the Chief Secretary's reply to the Amendment, which was moved in very persuasive terms by my hon. Friend the Member for Mid-Bedfordshire (Mr. Hastings), is disappointing in the extreme, because it was so much less forthcoming than the


replies on the same point raised in previous years.
I remember that last year, at about a quarter-to-four in the morning, as the cold grey light of day was beginning to come through the windows of the Chamber, I moved the Amendment to which my hon. Friend referred, and it was replied to by the Financial Secretary on 21st June, reported at column 534 of the OFFICIAL REPORT. Unlike the Chief Secretary tonight, who has attacked the matter on an issue of principle, the Financial Secretary on that occasion gave three reasons why he could not accept the Amendment.
I had argued it principally in relation to British banks operating overseas, though the Amendment was not so limited. He said that it was not right to single out one particular business, and I accept that that is right. He made the point that this would increase the incentive to invest in low-tax countries, and he also said that it would reduce the disincentive to invest in high-tax countries. Indeed, one is the other side of the same coin.
The Financial Secretary also referred to the now well-worn theme that it could lead to tax avoidance, but on that occasion he said:
I do not want to make too much of this."—[OFFICIAL REPORT, 21st June, 1966; Vol. 730, c. 534.]
11.15 p.m.
My hon. Friend has not sought special treatment for any trade. The matter is argued generally. Obviously, it affects a large number of businesses which operate in a number of countries overseas. Were we to raise the matter on the rather practical grounds of the Financial Secretary, we would be left with only the economic effect, namely, that this would have a marginal impact on overseas investment. Perhaps I may be allowed to say a word or two about that, because the Chief Secretary gave it as one of his reasons.
In 1965, the Financial Secretary admitted that we had a case. My hon. Friend has quoted from the Report stage debates, when the Financial Secretary indicated his view that there was substance in the case if means could be found of giving expression to it. The question which one must now ask is whether the impact on overseas invest-

ment—the encouragement to go to a low-tax country or the reduced disincentive to invest in a high-tax country—is now so great in relation to our total overseas investment that it cannot be tolerated. Are we reduced to such a pass that the marginal effect which might arise, which would be necessary to give rise to the justice which was then admitted, cannot be borne?
Nobody has ever disputed in relation to overseas investment that the short-term curbs could well be justified in a moment of balance of payment crisis as a means of temporarily staunching the flow of investment overseas. This has received qualified—I emphasise "qualified"—support from the Reddaway Report, to which my hon. Friend referred. It should be noted that unlike many commentators on this matter, I am quoting from the Reddaway Report and not from any of the handouts about it.
At page 131, the Reddaway Report states:
A restriction of direct investment overseas would, for a considerable time, make a contribution to the problem, but it does not follow that it is a wise policy: the most that one can do is to make the rather tautological remark that, if nothing else is considered feasible (or adequate without the restriction on direct investment overseas), then the policy may be better than the last resort—which is economic stagnation.
I forbear from pointing out that we seem to have managed to get both from the Government.
The whole tenor of the Report—I was astonished by what the Chief Secretary said in his brief reference to it—is that long-term curbs, restrictions and disincentives are harmful to the economic interests of the country. I will not read the full page, but perhaps I might read the two paragraphs which deal with this. I quote from page 130 of the Reddaway Report:
An average act of direct investment overseas will strengthen the future balance of payments on current account, even after deducting the interest payable on the overseas borrowing … by which, at least from the national point of view, such an act of investment is almost wholly financed. In consequence, a steady rate of direct investment overseas would, if maintained long enough, provide enough of an annual surplus on current account to finance the annual quota of new investment.
Perhaps one of the most factual conclusions of the Report was that over the


period which it examined, from 1954 to 1965, that was exactly what happened: overseas investment was self-supporting.
The Financial Secretary is not present, but I raised the question of long-term restrictions in the Budget debate. The Amendment seeks to modify in a small regard the long-term fiscal disincentives on investment. I raised the question of what the Reddaway Report showed. I used different words but with exactly the same meaning. In the Budget debate, the Financial Secretary said that
if, as a result of this Report, anybody has to swallow his words spoken two years ago, it is not anyone on this side."—[OFFICIAL REPORT, 13th April, 1967; Vol. 744, c. 1499.]
The Chief Secretary echoed those words tonight when he said that it wholly bore out what the Government have been saying. That is not the conclusion of most of the responsible commentators on the matter.
The Financial Times said on 29th March of this year:
… the Government can take little comfort from a report whose findings by implication condemn the approach adopted by Mr. Callaghan.
The Economist said:
Measured by the Reddaway yardstick, the indiscriminate and permanent tax disincentives to foreign direct investment written into the 1965 Finance Act seem to be folly.
Those are remarks by the two principal commentators on the matter, and for the Government to claim that the Reddaway Report bears out their policy of long-term, permanent fiscal disincentives to overseas investment seems to be the height of folly.
Now we have even the National Economic Development Council considering the Reddaway Report. The Times reported on 6th April:
Overseas investment is a good thing in the long term, the National Economic Development Council decided at its monthly meeting yesterday. But while they felt it was generally the right course for a country like Britain to take, Neddy members agreed that short-term limitations during a balance of payments crisis were unavoidable.
But we are not discussing short-term limitations. We are discussing a long-term, built-in financial disincentive to overseas investment.
The new dispensation of Corporation Tax and the limitation of double tax relief operates particularly harshly on those companies which have investments in a number of different countries. That is the situation which we are discussing. The Amendment undoubtedly would mitigate the harshness in allowing the taxation which is unrelieved from profits earned in low-tax countries to be relieved against the balance left from the high-tax countries. That would seem to be a perfectly reasonable proposal, but the Chief Secretary has told us that it is wholly contrary to every principle which has already been written into the taxation system. I hope that I do not misquote him. I understood him to say that this was not what the taxation system sought to do.
My hon. Friend the Member for Mid-Bedfordshire has pointed out very pertinently that the taxation system of the country which the Government purport to take as their model—the American system—does just that. If industry is having to compete in overseas countries with American industry, clearly it is competing subject perhaps to a minor but none the less significant disadvantage in that allowances available to their American competitors are not allowed to companies based in this country.
Indeed, the American practice has the advantage of recognising the reality of the situation, namely, that groups of companies operating in a large number of different countries are operating as one worldwide organisation. They do not look at a series of separate individual businesses, each in a separate compartment. They look at their worldwide operations as a whole. It is according to that test that they should be judged and according to that test that they should be taxed.
The Amendment would go some way to achieving that result. I am extremely disappointed that the Chief Secretary has resisted it in such uncompromising terms. I believe that my hon. Friend has a good case, and my advice to him is that, when the Question is put, he should leave the Amendment to be negatived and not seek to withdraw it. I believe that he has a good case.

Amendment negatived.

Mr. Patrick Jenkin: I beg to move Amendment No. 134, in page 38, line 42, at the end to add:
(3) Paragraph 4(1) of Schedule 16 to the Finance Act 1965 (which defines the circumstances under which a company resident in the United Kingdom can claim relief for the underlying tax paid abroad by an overseas company paying dividends to the first-mentioned company) shall be amended by the insertion after the word 'which' of the words 'has acquired shares of the first-mentioned company at a cost of one million pounds or more or which'.
This Amendment covers a rather different point. It seeks to widen the category of companies operating overseas which should be treated as a direct investment of a United Kingdom shareholder and not as a portfolio investment. Hitherto, the test of what is a direct, and what is a portfolio, investment has been the percentage of voting power in the overseas company, and the present rule is that to be a direct investment the United Kingdom company must hold at least 25 per cent. of the voting power in non-Commonwealth countries, or 10 per cent. in the case of Commonwealth countries and some of the countries with which we have double taxation treaties.
The double taxation treaty system is intended—and I hope that I carry the Chief Secretary with me on this—to prevent, or, at any rate, to minimise, the situation in which income is subject to two taxes in two different countries. It is to stop the income being taxed twice over.
In the case of dividends moving from one country to another one has to consider two sorts of taxation in the country where the company is operating. There is the direct tax on the dividends, the so-called withholding tax, and there is also the tax which has been paid by the company itself in the country, the so-called underlying tax.
Until 1965 relief for the underlying tax as well as for the withholding tax was given in almost every case. It was only in respect of a few countries outside the Commonwealth with which we had no double taxation convention that no relief for underlying tax was given. The 1965 and 1966 Finance Acts made substantial changes to that position and substantially reduced the number of circumstances in which relief from underlying tax was given. In particular, they brought about the situation in which portfolio invest-

ments rarely, if ever, qualify for relief from underlying tax. Direct investment—the 25 per cent. or 10 per cent. test that I mentioned—still qualifies for the underlying tax.
The position, therefore, is that the distinction between direct and portfolio investment, having before 1965 been of relatively little importance—it arose only in the case of a very few countries, and those which were of comparatively minor significance from the point of view of United Kingdom investments overseas—is now relevant in virtually every country in which we have investments. It is, therefore, a question of critical importance to any company whether its investment in an overseas company is a direct or a portfolio investment, and as the law stands this is to be judged by the voting share test—25 per cent. or 10 per cent. according to the circumstances.
It is becoming apparent that this test is altogether too crude to judge so important a matter. It gives rise to great unfairness, and at times it gives rise to considerable anomalies. The justification for the distinction was given by the Financial Secretary during one of the lone debates that we had on the 1965 Finance Bill. On 16th June, the hon. and learned Gentleman gave two main reasons for this. The first was that there was a fiscal difference between a direct and a portfolio investment in that the direct investment was, as he put it, a subsidiary of the investing company.
The hon. and learned Gentleman said:
… the underlying tax that is paid by a subsidiary company—and applying the 25 per cent, test as to what is a subsidiary—is, in a sense, tax paid within the company sector and to grant the relief does not conflict with the principle of Corporation Tax by separating company taxation from the individual tax paid by the shareholder.
That was the fiscal reason, and the hon. and learned Gentleman then told us the economic difference, in that direct investment can be presumed to bring greater returns to this country. He said:
It is the trade investment which is likely to be more productive, and is designed to be productive of helping future trade between ourselves and the countries in which the investment is taking place."—[OFFICIAL REPORT, 16th June, 1965; Vol. 714, c. 574–5.]
11.30 p.m.
Therefore, the position is reached, on this explanation, where the question is: is this a trade investment, and is it in the


company sector? If there is to be a distinction, this must be the basis of any logic which underlies it. If it is in the company sector and is a trade investment it should be regarded as a direct investment and should qualify for relief from underlying tax.
Conversely, it ought not to be excluded merely because it fails to meet what is by any standard an arbitrary percentage test. If investment in a trade is a trade investment it can be a trade investment even if it is less than 25 per cent. or less than 10 per cent. One can well imagine investments which by their sheer size amount to trade investments. When the size of the investment and the amount of money involved goes above a certain limit it is unrealistic to regard it merely as a portfolio investment.
The Chief Secretary will ask what is the basis on which to work. What is the limit? I concede that it must be an arbitrary test, but it is no more arbitrary than the present test, and it is quite a logical proposition that by adopting the alternative of two arbitrary tests the ultimate result is less arbitrary than if only one had been used. I hope that I carry the Chief Secretary with me in this. That is a logical position, which is wholly consistent. To add another arbitrary test may well be an improvement.
The Amendment sets a figure of £1 million as the limit. I cannot conceive of any investment overseas which would be, strictly speaking, a portfolio investment where the investor could have put £1 million into it. Every investment made by a company overseas would be bound to be regarded by any normal test as a trade investment. One can argue that the figure should be lower. We were pressed to write in a figure of £100,000, but that would be too low, because there must be plenty of insurance companies and others with individual investments worth that or more.
On the Financial Secretary's own test it seems that the higher figure of £1 million must qualify. It must be in the company sector, because only a company would go in for a single holding of this size, and it must be of sufficient importance for the United Kingdom investor to put it into his own company accounts as a trade investment and not in any sense as a vehicle for the reserves of the

company, or some form of temporary saving.
The Amendment would exclude accretions from ploughed-back profits. It refers to the cost of acquisition. Where the cost of the acquisition of shares is more than £1 million, notwithstanding that it does not come up to the percentage test we consider it should be regarded as a trade investment and a direct investment and that underlying tax relief should be allowed.
This would avoid two serious anomalies. The first anomaly is that of the large investment in a tiny company being regarded as worth more, for the purposes of tax relief, than a much larger investment in a very large company—for instance, £25,000 invested in a £100,000 company in Japan would qualify for relief from underlying tax, but an investment of £4 million in a £20 million company in the Common Market would not. It is difficult to justify that sort of distinction on any basis of logic, since a 20 per cent. investment in a £25 million company—I quote again what the Financial Secretary said in column 575—
is likely to be more productive … of helping future trade between ourselves and the countries in which the investment is taking place
than, say, a 25 per cent. investment in a tiny company which is only 1/200th part the size. This is an illogical position, yet at present the tiny investment qualifies for relief and the large investment does not.
The second anomaly is that the percentage test can result in a sudden and drastic change in tax treatment if the company's stake falls below the limit. If an overseas company were involved in a takeover in its own country and issued shares in exchange for assets, it might immediately reduce a United Kingdom shareholder's stake below 10 per cent. or 25 per cent., and there would be a drastic change in his tax treatment. It could also be reduced if our authorities forbade a United Kingdom company to participate in a rights issue by an overseas company. Yet the investment would be no less direct, no less a trade investment, no less "productive of helping future trade" between the two countries.
This additional, "size of investment," test would go far to remove the anomalies and would be consistent with the Financial Secretary's explanation two years ago.


When a company in which one has a 10 per cent. holding is regarded as substantial, there is no lack of logic in treating as the same case a company in which one has a large money holding, although it may be less than 10 per cent. The Amendment is consistent with what the Government have said since the Corporation Tax was introduced, and is very moderate because of the high figure which we have included. I hope that the Government will find it acceptable.

Mr. Hastings: I support the Amendment, since I had a similar one on the Notice Paper myself. The object of this arbitrary precaution is to exclude so-called portfolio investments from relief from underlying tax, and this is ridiculous. A 25 to 30 per cent. holding in a sweet shop in Lusaka makes one entitled to the relief, whereas a 10 per cent. holding in a vast mining consortium does not. The control regulations in many countries make it difficult or even impossible for this sort of percentage of voting control to be acquired or maintained.
Second, it takes no account of what I would call consortium investment. The capital requirement of international consortia has grown immensely over recent years. The Mount Newman iron ore contract in Western Australia, for instance, is seeking capital of £100 million, and it is no exaggeration to say that one can invest abroad 25 million or more in an international consortium. A company in this country which did that could end up with a holding well below 25 per cent., but this sort of money surely calls for managerial participation.
My hon. Friend the Member for Wan-stead and Woodford (Mr. Patrick Jenkin) convincingly drew attention to the distinction between portfolio and what he called trade investment, and what I would call managerial investment. Investment on this scale must involve managerial participation. Any of the large concerns in this country involved in this sort of business would certainly confirm that. This scale of investment is well beyond the limit of what one might call portfolio investment. Voting control as a gauge between one kind of investment and another is a totally irrelevant criterion.
Any criterion which we put forward from this side is bound to be arbitrary

to a certain extent, but I am sure that the figure of £1 million—I think that I suggested dividends of £200,000 in my original Amendment—is at least more meaningful than this business of 25 per cent. of voting control.
I earnestly hope that the right hon. Gentleman will show himself a little more reasonable and understanding on this Amendment than he was on the last.

Mr. Diamond: I can respond to the request for reasonableness made by the hon. Member for Mid-Bedfordshire (Mr. Hastings) because all the examples which he gave are covered in practice in a way which is satisfactory to him. He talked about 25 per cent. and then asked why it should not be 10 per cent., by comparison with the position in Lusaka. The answer is that, taking Lusaka or any other place in the Commonwealth, 10 per cent. is adequate there.
The hon. Gentleman then mentioned Western Australia, which is subject to a double taxation agreement and is not covered by the Clause, which deals only with unilateral relief. For Australia, therefore, as in other similar cases, relief is given at 10 per cent. The points which the hon. Gentleman made are being met in practice. What we are considering here is what we do in the case of unilateral relief, that is to say, where there is no agreement between the countries concerned as to what is to happen.
I now turn to the case put by the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin), who has saved me a lot of time—I am sure that the Committee will not want me to go into the matter at length—by correctly detailing the essential principle, which is: is it a trading investment or is it not? A trading investment is one in which one is concerned with a trade, and, where one is concerned with a trade, one wants to participate in the trade. One wants one's rights protected, and one takes care to see that one has, normally, such a percentage as ensures that one has reasonable control of the situation.
Such a figure is 25 per cent. In fact, that is low for securing control. To be absolutely sure of control, one would like to see a little more than 25 per cent., if one is investing with a view to participating in trading and not in a purely financial investment, even though the rest


may be spread among a number of small shareholders. However, to meet this point, the Bill provides for a rather low figure, namely, 25 per cent.
The proposal now is that we depart from that and say that, because the investment is large—I admit that £1 million is a large investment—its nature must be coloured by its very size. That is the proposition. I understand it. I do not accept it. Mostly, it would be likely to be so; generally speaking, £1 million would represent a substantial proportion—25 per cent. or 10 per cent. in Commonwealth cases—but I do not accept that sheer size would determine the quality of the investment or the mind of the investor.
It is quite possible for £1 million to be a pure portfolio investment, a financial transaction. Equally, it is quite possible to have £100 as a method of carrying on a trade jointly with others.

Mr. Patrick Jenkin: The right hon. Gentleman says it is quite possible. Has he ever heard of one?

Mr. Diamond: I do not know what the hon. Gentleman is now saying. If there is no case in which £1 million is not a trading investment and is not in any sense concerned with control, there is nothing to consider. The Amendment is not necessary. But, if it is the case that there are investors, individual investors such as a unit trust, with £1 million to invest in one very large company, so large that £1 million represents less than 25 per cent. of it, I still say that it is in the nature of a financial investment and not in the nature of carrying on of trade. I cannot, therefore, recommend acceptance of the Amendment.

Amendment negatived.

Clause ordered to stand part of the Bill.

Clause 35 ordered to stand part of the Bill.

Orders of the Day — Clause 36.—(CENTRAL AFRICAN PENSION FUND.)

Question proposed, That the Clause stand part of the Bill.

11.45 p.m.

Mr. Peter Hordern: The point of the Clause is to safeguard the

position of a non-resident in receipt of a pension from the Central African Pension Fund. Last week, the Fund was shown to be in some difficulty by a Written Answer given by the Secretary of State for Commonwealth Affairs, in which he said:
To help meet the problem of liquidity funds have been made available by Zambia, Malawi and the Smith régime. In addition, the Crown Agents as Trustees, have made available £250,000 from funds at their disposal. In order that this may continue to be available they require a guarantee by H.M.G. as a party to the Public Officers' Agreement.
Is all the sum of £250,000 envisaged, at any rate for this financial year?
Secondly, is the Smith régime carrying out what were formerly the obligations of the Government of Southern Rhodesia, and what exactly is the body now making this payment? Thirdly, a question of which I have given notice, what precisely is the nature, if any, of the guarantee given by Her Majesty's Government as a party to the Public Officers' Agreement? In his Written Answer, the Secretary of State for Commonwealth Affairs said:
In order that this may continue to be available …."—[OFFICIAL REPORT, 7th June; Vol. 747, c. 229.]
Is that guarantee now considered to be continuing?

Mr. Harold Lever: It is true that the hon. Member for Wycombe (Mr. John Hall) has given me notice of these questions, but, alas, it was too brief for me to be able to give him the answers. Had he given me further notice I should have tried to give him them, although I should perhaps have been out of order, because the Clause does not relate in any way to his questions, except in a political sense. It is merely a revenue Clause, which provides that the Central African Pension Fund shall be put on the same basis as any approved domestic pension fund. Its income will accumulate tax-free and the pensions paid out of the fund will be received by overseas pensioners free of tax.
That is all that the Clause does. It follows that guarantees relating to it, the source of its funds and matters of that kind do not arise under it. I shall gladly do my best to gratify the hon. Gentleman's curiosity if it is in my power to do so, but these questions should be directed to my right hon. Friend the


Secretary of State for Commonwealth Affairs, and no doubt the hon. Gentleman will arrange to do that. The Clause has a much more limited purpose than the points he raised.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 37 ordered to stand part of the Bill.

Orders of the Day — Clause 38.—(INTEREST ON UNPAID TAX.)

Mrs. Margaret Thatcher: I beg to move Amendment No. 156, in page 40, line 41, to leave out subsection (2).
The Clause increases the rate of interest on unpaid tax from 3 per cent. to 4 per cent., and the Amendment seeks to delete the provision which gives the Treasury power to vary the rate. This is not the kind of rate of interest which it would be wise to fluctuate frequently because it would make for very complicated calculations and people would not know where they were. Moreover, this would be the kind of variation that could wait for the Finance Bill if any variation was called for.
Although the subsection takes power to increase or decrease the rate of interest it is a reasonable guess that the Chancellor would be more likely to use it to increase it rather than decrease it. Bearing that in mind and that 4 per cent. is a net rate, that is, that it is paid out of net taxed income, I see little need to give the Treasury these powers. At any rate, I think that most of us would be prepared to forgo the forlorn hope that the Chancellor might decrease interest in return for the certainty that he could not increase it without further legislative powers in another Finance Bill.

Mr. MacDermot: I agree with the hon. Lady the Member for Finchley (Mrs. Thatcher) that this is not a rate of interest which one would expect would be subject to frequent variation. It therefore calls for some explanation why the Government propose that this should be done or why the Treasury should have power to do this by Order subject to negative Resolution procedure rather than leave it to be done in Finance Bills.
The simple answer is that in cases where it is proper to vary the rate there

are obvious advantages in being able to do it at fairly short notice in the light of circumstances without waiting for a Finance Bill. I think that the experience of the last 20 years is perhaps something of an object lesson in this respect. The rate of interest on arrears of tax has remained unchanged over the whole of the 20 years since it was first introduced in 1947 although during that period Bank Rate has varied from the extremes of 2 per cent. in 1947–52 to 7 per cent. in 1957, 1961 and 1964 and between July, 1966, and July, 1967.
Certainly, if it is sensible, as I think it is agreed it is, to be able to vary this rate so that it continues to have the deterrent effect that it is intended to have, then one would think that there ought to have been some variations in those 20 years. It is perhaps not a rash assumption that it is the fact that this can be done only by a provision in the Finance Bill that was a substantial factor contributing to this inflexibility. Twenty Chancellors all moved not to add a Clause to the Finance Bill which could be left over to another year. Perhaps one day in the distant future the hon. Lady will have an experience which will make her understand this point better.
These are the reasons for it. There are precedents for it. There are many other rates of interest which can be varied, or a number of others, by Treasury Order. I think that the most immediately relevant one was a power in the Land Commission Act for varying the rate of interest on arrears of betterment levy, and that was done by the same procedure. There are, of course, some rates of interest in the tax field which can be varied by Treasury Order without the need for a Statutory Instrument. An example is the rate of interest on tax reserve certificates and the rate for Public Works Loans Board loans, both of which can be varied by notice published in the London Gazette. However, full Parliamentary control is retained by the fact that there is the negative Resolution procedure so that the consent of the House of Commons would still be required, which it would be with a Finance Bill.

Mrs. Thatcher: In view of the Financial Secretary's explanation, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. MacDermot: I beg to move Amendment No. 153, in page 41, line 12, after 'purposes', to insert '(a)'.
Sir Eric I think that it would be convenient to discuss, at the same time, the next Amendment. No. 154.

The Chairman: Yes, if that is the wish of the Committee.

Mr. MacDermot: These Amendments provide that interest on arears of tax is to be treated as if it were tax for the purposes of Section 35(2,g,i) of the Crown Proceedings Act and the rules of court made thereunder for England and Wales or Northern Ireland.
At the time when the original drafting was done it was thought that no express provision of this kind was required, but it now appears on further advice that it is better to have an express provison. It is obviously sensible that if we give power for these arrears to be collected in the county court there should be the same provision precluding set-offs and counter-claims in the county court rules as there is in the High Court rules.

Amendment agreed to.

Further Amendment made: No. 154, in page 41, line 15, after 'proceedings)', insert:
'and
(b) of section 35(2)(g)(i) of the Crown Proceedings Act 1947 (rules of court to impose restrictions on set-off and counterclaim where the proceedings, or set-off or counterclaim, relate to taxes) and of any rules of court (including county court rules) for England and Wales or Northern Ireland, made before or after the passing of this Act, which impose such a restriction, and
(c) of section 35(2)(b) of the said Act of 1947 as set out in section 50 of that Act (which imposes corresponding restrictions in Scotland)'.—[Mr. MacDermot.]

Clause, as amended, ordered to stand part of the Bill.

Clauses 39 and 40 ordered to stand part of the Bill.

Orders of the Day — Clause 41.—(QUORUM OF SPECIAL COMMISSIONERS IN TAX CASES.)

The Chairman: The Question is, That the Clause—

Mrs. Thatcher: On a point of order. I understood that Amendment No. 142 was selected, Sir Eric. My hon. Friend the Member for Folkestone and Hythe (Mr. Costain), who put it down, is not here, but I wonder whether I may move it, because it looks to me as though it is one which has to be made. It speaks for itself.

Amendment proposed: No. 142, in page 44, line 3, to leave out 'subsection' and insert 'section'.—[Mrs. Thatcher.]

The Solicitor-General (Sir Dingle Foot): I have pleasure in accepting the Amendment.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clauses 42 and 43 ordered to stand part of the Bill.

Mr. Iain Macleod: I beg to move, That the Chairman do report Progress, and ask leave to sit again.
The Committee has got through 18 Clauses and four Schedules today. That is a remarkable day's work, and this is the obvious point at which to break off and go to bed. I hope the Chief Secretary will accept the Motion.

Mr. Diamond: I accept the offer made by the right hon. Gentleman, and offer thanks to him and his colleagues for the way in which our debates have been conducted today.

Question put and agreed to.

Committee report Progress; to sit again Tomorrow.

Orders of the Day — SITTINGS OF THE HOUSE (MORNING SITTINGS)

Order [14th December] to have effect with the omission on paragraph (9) of Part A of the said Order.—[Mr. McBride.]

Orders of the Day — EDUCATION (DANIEL DORDAY)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. McBride.]

11.58 p.m.

Mr. A. H. Macdonald: I wish to raise this evening the case of Daniel Dorday, the son of Mr. and Mrs. Dorday, my constituents. Daniel Dorday is a young boy, just 4 years old, and he is almost completely stone deaf, and it is my contention that he is not receiving the education which is best suited to his needs.
I have seen Daniel and met his parents, and it is very evident that they care for him deeply, and in a sense is is a great mercy that they do, because he is constantly shifting around, poking into this and that, moving around from place to place, making little noises, and it is difficult to control him or to prevent him because of this great difficulty of making contact with him on account of his disability.
It is probably well recognised that children suffering from this disability need to start their education at an age, if at all possible, rather earlier than other children so that the initial problem of establishing contact with them may be overcome. It is my complaint that Daniel is being excluded from the special facilities that ought to be made available for children suffering from this disability.
The education authority responsible for Daniel's education is the London Borough of Bromley. I make it clear that nothing I say is intended in any way as criticism of that borough nor of the facilities it provides. The London boroughs, including Bromley, have been in existence for only two years with full powers and, therefore, they have only the facilities they found available when they took over and it would be unreasonable to expect them to produce everything in a relatively short space of time.
So when I say that, in Bromley, there is no special school for the deaf, I am not saying that in any way as a sort of criticism, but am stating it as an objective fact. But although there is no special school for the deaf in Bromley, the borough is making efforts to provide educational facilities for deaf children. I

will briefly mention them but I want to show that in no case are they exactly suited for what Daniel requires.
First, Daniel is attending and has been attending for some time classes on two afternoons a week in Beckenham. I am grateful to and admire the lady who takes these classes. She deserves praise and will receive no criticism from me. But again I state, simply as an objective fact, that she is not, I understand, a teacher specially qualified for teaching the deaf.
Secondly, just within the last few days, a special unit has been established in St. Paul's Cray, which Daniel attends on four mornings a week. Once again, the ladies responsible for this unit deserve admiration and not criticism, and they will get no criticism from me. But again, I state as an objective fact that they are not, I understand, teachers specially qualified for teaching the deaf.
Thirdly, as has been mentioned in correspondence I have had with my hon. Friend the Minister of State—she wrote this on 8th April—
… Bromley hope to open a special class of their own in 1968 for young children with impaired hearing.
Indeed, Bromley does. But I am advised that this class will be for partially deaf children and therefore will be of no particular assistance to Daniel because he is almost completely stone deaf.
Fourthly, the Bromley authorities have been in touch with the Porterhouse School for Deaf Children, in Surrey. The point I make here is that the school is under the control of another authority. That point will, I hope, become relevant in a moment. Unfortunately, there is no place at the school for him until some time next year.
Finally, Bromley has been in touch with a school for deaf children in Margate. I hear very good reports of it and no doubt it is admirable. But it is a boarding school. Even for a normal child aged 4 it would be a rather harsh and drastic step to send him away to a boarding school and perhaps this should be done only if absolutely necessary.
In this case, where we have a little boy whose contact even with his own family is necessarily limited because of his disability, to send him to a boarding school among total strangers with whom he will


have no contact is a drastic step and one which should be taken only if everything else fails. These, then, are the facilities that Bromley has tried to make available and in no case are they exactly suited to what Daniel requires.
So it is necessary to look somewhere else, and not very far. In the adjoining Borough of Greenwich there is a special school for deaf children, the Beverley school, at a distance not impossibly far away, but this school is already full.
I am not so foolish to suppose that simply because I make a fuss a place will magically be found for Daniel at this school. All I am asking is that he should be considered on equal terms with other deaf children for a place there. If, on that basis, no place for him could be found, then, with regret, I would have to advise his parents that I could do nothing further. However, my contention is that he has not been considered equally.
I rest my case on the provisions of the London Government Act, 1963, which provides, as I read it, that borough boundaries shall be no necessary bar for children to receive the education that they require.
I submit that Daniel should be offered an even chance for admission to the Beverley school, Greenwich, with other deaf children in the south-east London area—a chance no greater, but certainly no less. Unfortunately, it appears that he is being excluded from consideration for admission to this school upon the sole ground that his parents are resident in an outer London area. Beverley school is filled with children from the inner London area and a place for Daniel is not and would not be available unless and until all the children from the inner London area had been satisfied with places.
I submit that this is a contravention of Section 31(8) of the London Government Act, which states that
… it shall not be a ground for refusing a pupil admission to … any such school or institution maintained or assisted by a local education authority in Greater London that the pupil resides in the area of some other local education authority if that area is within … Greater London.
I am advised that the Beverley school used to admit children from the outer London area. I will quote from a letter

dated 6th March, 1967, which I have received from the Chief Education Officer of the London Borough of Bromley:
Until about the middle of 1966, we were reasonably well served by the Inner London Education Authority who allowed us to make use of their day special schools. We were then informed, however, that because of the lack of places, children from outside the Inner London area could no longer be considered.
Further to that, I have had, as I have mentioned, correspondence with my right hon. Friend and in a letter dated 28th April, 1967, she referred to this exclusion:
… the steps they"—
the Inner London Education Authority—
took were prompted not by any wish to restrict the catchment areas of the schools, but by the fact that applications were exceeding what the schools and their staffs could cope with. I do not think it would have been a solution to admit, to day schools, children from more distant homes if this meant excludin children who lived nearer.
I cannot accept the contention in that last sentence. Is it the case that Daniel is being excluded from this school and that children from inner London are being admitted to it whose disability is less severe? If so, this is unjust. Or is it that Daniel is failing to get a place at this school and places are being taken by children from inner London who are younger than him? Once again, if that is so, it is unjust.
It is just a coincidence, but one thing which makes Daniel's exclusion very grievous and galling and hard for his parents to bear is that there are children from outer London areas being admitted to Beverley school, and it so happens that one of these children from further out travels daily to and from Beverley school in transport that passes the end of the road in which my constituents live. Therefore, Daniel's parents daily see some other child from the outer London area enjoying facilities from which their son is excluded, and that is very distressing for them.
My constituents have been told in writing that there is a school for the deaf at Tottenham and that if they moved to north London, Daniel would be admitted to a place there. They have been told verbally that if they were to move to inner London, Daniel would qualify for a place at Beverley school. It therefore appears that his exclusion from Beverley


school is based solely on the fact that he lives in an outer London borough. The head of Beverley school has seen Daniel and considers him to be suitable for admission to the school.
I think that I have said sufficient to show that if Daniel lived in inner London, he would have been admitted to Beverley school and that his exclusion is based solely on the ground that he lives in outer London. I know that my right hon. Friend can hardly intervene in matters of detail and I do not expect her to wave a magic wand and create a place for Daniel at this school, but I ask her to intervene to ensure that the law is being observed. All I ask is that Daniel should have an equal chance with other children in the south-east London area for admission to the school most suited to his needs.
During the last few days, the House has been considering matters of great importance—the tragic affair in the Middle East and today the Finance Bill, setting out the taxation structure for the coming year. I hope that it is with no sense of anti-climax that we now turn to consider the affair of one little boy, because his education is to him as important as the other matters which we have been considering. I hope that my right hon. Friend will give some assurance that the education suited to his needs can be provided for him.

12.12 a.m.

The Minister of State, Department of Education and Science (Mrs. Shirley Williams): I should like, first, to congratulate my hon. Friend the Member for Chislehurst (Mr. Macdonald) on raising this case and on the great energy with which he has pursued it over a number of months, dating back to nearly a year ago when he first took it up with my predecessor, the late Mr. Edward Redhead. He has taken great interest in the family and he has clearly expressed that interest tonight.
Young Daniel's position has shown some improvement in the last few days, as my hon. Friend has pointed out, since originally attending part-time nursery school at Beckenham with occasional visits from a peripatetic teacher of the deaf in Bromley who herself is considerably burdened with a heavy case load.
Since 5th June, as a purely temporary arrangement, this young boy has joined

a group of pre-school partially hearing children at Midfield Primary school under a teacher who is qualified, though admittedly not qualified as a teacher of the deaf, but who has a child who is itself deaf and who has shown a very sympathetic approach to the problems of deaf children for a considerable length of time. In addition to this, and the fact that the boy will still be attending his nursery school on Monday and Friday afternoons, he will also be given individual training on Wednesday afternoons by the teacher who will be taking him with the pre-school group of partially hearing children.
Further, an application is being made to the Royal School for the Deaf at Margate. As my hon. Friend said, this was a boarding school, but for a young child living in Bromley it would be possible to make weekly boarding arrangements, and I understand that that would be acceptable to the parents. If the boy were accepted at the school, he would be able to attend a school with a very distinguished record of dealing with deaf children.
My hon. Friend forcefully made a point about the position of out-county children attending I.L.E.A. schools. It is not the case that the I.L.E.A., since the London Government Act, is refusing to take children from outside the I.L.E.A. area. Of the three schools for deaf children, at the Beverley School, one-quarter of the children now there are from outside the I.L.E.A. area; at the Old Kent Road School For the Deaf, one-fifth of the children now there are from outside the London area; at the special unit at the Meridian Primary School, just under one in four of the children are from outside the London area, and the situation is that the I.L.E.A. is still making available a very considerable number of places in its special schools for deaf children from outside London.
It is not so much the London Government Act, as simply the fact that London is now coping with an unexpected rise in the number of deaf children, which arises from the Asian 'flu epidemic in 1962–63 and from a rise in the number of cases of children whose mothers suffered from rubella, German measles in that year, which has led to an unexpected, and sharp rise in the number of deaf and partially deaf children. In consequence


of this, London has had to indicate that it cannot offer as many out-county places as it has been able to offer in the years up to 1966.
I would like to make it clear that it is still offering some out-county places, and that these out-county places are offered to children in the greatest need. In the particular case of Beverley school, with which the parents of Daniel Dorday are particularly concerned, we understand that already it has been necessary to reduce the education of ten pre-school children from full-time to part-time in consequence of the pressure on places. This is not purely limited to out-county children.
It is also the case that this school is finding itself up against a continual increase in demand from London and out-county children alike in the present year. In addition, it must be borne in mind that the Beverley school, and another of the schools for deaf children in London, are about to be replaced by a new school, and therefore they must not extend their capacity beyond what can be dealt with by the new school.
To do so would be to take on children whose education would have, at a very early stage, to be broken, with very sharp effects on the children. I would add that Bromley is planning to build a three-class prefabricated unit for partially deaf children at Orpington, which will serve Bromley. It is making an application, which we have promised to look at sympathetically. In addition, it is trying to open a unit for partially deaf children at the Ramsden primary infants' school in Orpington. Although it has advertised consistently for a teacher of the partially deaf, it has so far been unable to find anyone, and this I will deal with in a moment.
The Royal School for Deaf Children at Margate, to which I have referred, is to be rebuilt and expanded in the 1968–69 building programme. All this may not be of immediate help to Daniel Dorday, though it will help him, perhaps very soon. It is worth underlining the two major issues which affect the whole of the provisions for deaf children in South-East England.
It is not that there is a shortage, specifically of accommodation, although more

should be done in respect of building, and is being done. The real difficulty lies in the number of teachers qualified to teach deaf children. There has been a very sharp rise, from 589 teachers in 1959 to 773 last year, but the bulk of this increase has lain with teachers in special units, attached to ordinary schools, and in the number of peripatetic teachers of deaf children.
There has not been a corresponding increase in the number of teachers attached to special schools, and in consequence of this the schools have run into difficulties in attracting as many trained teachers of the deaf as they would wish to have. We are now endeavouring to increase fairly rapidly the facilities for the training of teachers of deaf children, but I must make it clear that it is these facilities for training, which themselves were negotiated and expanded before it was known that there would be this unexpected bulge arising from the 1962 epidemics, which are the bottleneck in the provision of trained teachers of the deaf.
I want to say a word in respect of what my hon. Friend said about units for partially hearing children being of no use for his constituents' child. The phrase "partially hearing children" does not mean the degree of physical disability from which the child may suffer. It is a term used largely to define the capacity of a child to be able to use natural speech and develop language with the help of amplification and his own natural hearing ability. So far as we know, it is not the case that Daniel Dorday would be in the group of children who are not capable of such language development or development of natural speech. We are not referring here to a physical state. We are referring to a potential for learning natural speech or language development.
In the light of this, I assure my hon. Friend that as far as I have been able to ascertain, there is no discrimination against his constituent's son simply on the ground that he is a child from outside London. On the contrary, London is still taking many children from outside the county. Alhough one or two children younger than Daniel Dorday have been taken into the school, I would refer my hon. Friend to an explanation


that was given him on 9th August by my predecessor:
For handicapped pupils, especially those under compulsory school age, admission to a special school where necessary is not simply a matter of dealing with children in order of age. It involves many complex and interacting medical, educational and social factors, including in the case of young deaf children such considerations as the ability of the parents to help the child at home in ways which stimulate the development of his speech and language. For example, a two year old who is a member of a large family which makes heavy demands on the time and attention of the parents may be in greater need of special schooling than a three year old who is a member of a small family.
We would need to look at each individual case to see whether the combination of the social need and the physical handicap was such as to indicate that in certain cases a young child might require education at one of the schools to which my hon. Friend was referring and would demand in those cases a higher priority than a child whose parents are in a strong position to help him, as the case of this young boy.
I assure my hon. Friend that we are making every effort to get this boy into a school which will give him the fullest possible educational opportunities concommitant with his parents' desire that he shall not be placed in a termly board-

ing school, which we appreciate and respect. But I believe that the temporary arrangements now made are considerably better than the arrangements which were made before this time. I very much hope that we shall shortly be able to say that this young boy's needs are being fully met.
I refer, lastly, to the position of the school at Tottenham. The reasons why the boy could not be placed at Tottenham unless he moved to North London were the strain on a 4-year old child making a daily journey from Bromley to Tottenham, which we, and I believe the authority, regarded as being beyond what could be asked from such a young child. The reference to his parents being able to get a place if they moved was purely a reference to the distance which a child of this age could be expected to travel daily.
I hope that my hon. Friend will accept the assurance that every effort is being made to find suitable educational opportunities for this child. I am satisfied that the provisions of the London Government Act, 1963, are not being overlooked in the case of his constituents' son.

Question put and agreed to.

Adjourned accordingly at twenty-four minutes past Twelve o'clock.